Updated on November 30th, 2023.
My wife Zoé quit her job this morning. Her human resources director reminded her: “Do not forget to take care of your vested benefits account!”. Puzzled, she did not know what to do with this information, so I thought to myself that I should elaborate on this subject a little.
When one quits their job, they also leave the pension fund in which their second pillar was preciously kept.
If you haven’t read our articles on 2nd pillar contributions or the BVG certificate, here’s a quick reminder of what makes up your vested benefits account: When you work for a company, you are legally obliged to put part of your salary directly aside to build up your pension. Part of these savings will go into the 1st pillar (AVS) and the remainder, generally the largest part, will go directly into your 2nd pillar (LPP). So, without necessarily knowing it, you will be making monthly contributions to build up your LPP assets. Over time, and with a great deal of effort, you will build up real capital that will be yours today as well as tomorrow. You cannot use it freely, but it is yours.
When you leave, your former company is no longer entitled to keep your capital. It is essential that it follows you so that it is yours in its entirety when the time comes.
This amount, ready to be transferred, is thus called “vested benefits”. It is kind of an in-between, a parallel world. But it is very real! It is not fictional, don’t worry. It is simply that, just like the amount dedicated to your retirement pension, or in very rare exceptional cases, you cannot receive it directly. It will therefore be transferred to a vested benefits account.
Who has vested benefits accounts?
Before it was called a “vested benefits account”, your capital was called “BVG assets” or “2nd pillar capital”. It will continue to bear this name as long as it is in a pension fund, as long as you continue to grow this capital and, finally, as long as you remain insured. Then, for a number of reasons, mainly three, this money will leave your pension fund and become “vested benefits”.
Leaving your current job
If you are retiring, this capital will be converted into a pension or paid directly into your current account. On the other hand, if you leave your job without retiring, you will be obliged to withdraw your BVG assets and transfer them (for a shorter or longer period) to a vested benefits account.
When you divorce, the general rule is that the 2nd pillars are shared equally between the ex-spouses. You will need to open a vested benefits account to receive these BVG assets.
A pension fund too full
When you change employer, you should, in principle, transfer your 2nd pillar assets to your new employer’s pension fund. In some cases, the new pension fund and its rules may not allow you to transfer such a large amount. You will be able to contribute the maximum authorised, and the remainder will end up in a vested benefits account.
What can you do with your vested benefits account?
Vested benefits account and change of job
As explained above, in most cases, changing jobs (in Switzerland) means changing pension funds (unless both your employers have the same pension fund). In principle, there is only one option open to you, but some people decide to opt for a second one.
Rerouting your vested benefits to your new pension fund
Though you can usually expect the HR department of your new employer to remind you, it is your responsibility to inform your previous pension fund of the transfer.
Should you forget, the amount will not vanish into thin air but will rather be transferred to an institution which bears the sweat name of “Substitute Occupational Benefit Institution”.
This case is frequent, nothing bad, but it does create extra paperwork to handle.
Keep it between us, but if you do not feel like doing it, let us know, we will deal with the whole thing as quickly as possible.
If part of your assets has ever transited through the Substitute Occupational Benefit Institution, make sure it did not stay there.
Rerouting your vested benefits assets to an invested vested benefits policy or account
The law required for employees who change employers to arrange for their assets to be retrieved to their new pension fund. But it does not penalise those who do not follow this rule. Peculiar right? Indeed, this introduced what is called a grey zone.
It is thus possible to hand over your assets to a financial institution (bank or insurance) instead of your new pension fund in order to make your money yield more profit while you patiently wait for the best moment to take it out. This possibility is not systematically the best thing to do, both options and their advantages should be compared:
- The interest rate paid out by your asset manager v. the new pension fund
- The increase in insurance coverage (disability, death, old age) the retrieving of your assets to your new pension fund represents
- The financial strength of your new pension fund
- The fiscal aspect of splitting your pension plan for when you will withdraw it
Once again: if you are unsure about how to proceed, or if you have doubts about whether some of your vested benefits are somewhere on the loose, let us know, we will take care of everything!
If by chance you opt for this solution, we strongly advise you to ask your former pension fund to split your capital into two parts (with the distribution of your choice). If necessary, this will allow you to withdraw your assets separately, thereby reducing the tax payable on 2nd pillar withdrawals.
Divorce and vested benefits accounts
If, after a divorce, you have received part of your ex-spouse’s assets, you may be able to open a vested benefits account or policy to leave this money until a withdrawal situation arises:
- Buying your main home
- Reaching retirement age (or 5 years before)
- Leaving Switzerland
- You want to become self-employed
You should know that your bank (apart from some small banks) has a vested benefits foundation that will be happy to accept your money. Now, if you have the time and inclination to find out more, you should know that it can be worthwhile (economically) to choose your account carefully.
And as always, if you find yourself in one of these situations, don’t hesitate to contact us. We’ll take the time to answer all your questions.
Discover our new online platform to entrust us with your tax return!
Complete your 2022 tax return online!
In the blink of an eye!