A closer look at the Swiss Pension System
The Swiss pension system comprises of three types of pensions, known as "pillars".
Pillar one is insurance for old age and survivors, disability and unemployment. Contributions to Pillar 1 are re-distributed to pay benefits for others.
The money you and your employer contribute to Pillar 2 (company pension schemes) or that you pay to Pillar 3 (private pension schemes) technically belongs to you. It will be paid back when you reach retirement age.
However, there are situations where these funds (or a part of them) can be accessed at an earlier stage. Leaving Switzerland with the intention to live abroad afterward is one of these events.
Pillar 3a - private pension schemes
Many Swiss taxpayers operate a Pillar 3a plan (private pension) with a bank or an insurance company.
These plans are not coordinated under the Swiss-EU or any other social security agreements, so for this reason they are treated in a simple way: if someone decides to leave Switzerland and permanently live abroad - no matter where - Pillar 3a plans can be cashed.
When should you cash your Pillar 3a funds?
When this should be undertaken may be a question of timing, as many countries levy taxes on a lump-sum payment from a Swiss private pension fund. It is therefore often advisable to cash the pillar 3a shortly before departure, and have it taxed at the very favorable Swiss tax rates on capital payments.
In some circumstances it may even be an option to maintain the Pillar 3a plan to benefit from the insurance and some Swiss Franc savings in Switzerland. This is mainly possibly if you have taken out Pillar 3 as an insurance policy rather than as bank fund.
Pillar 2 - company pension schemes
Company pension schemes follow more rigid rules, those between Switzerland and EU/EFTA countries. Contrary to Pillar 3a savings, Pillar 2 benefits cannot be withdrawn if you are moving to an EU/EFTA country and will begin paying contributions there.
In this situation, the money in your Pillar 2 plan needs to be deposited on a vested benefit account in Switzerland and will only be paid when reaching retirement age, or when triggering another incident that grants early access to the funds.
This is only applicable for the mandatory portion of your company pension fund. As you may know, there is a distinction between Pillar 2a (mandatory) and Pillar 2b (not mandatory) company pensions. Many individuals with higher income will contribute to a Pillar 2b plan ("senior management plan", or similar). These funds, like Pillar 3a money, can be withdrawn, even when relocating to a EU/EFTA country.
When moving to a country outside of the EU/EFTA, all funds in the company pension can be withdrawn. This is, depending on how long you contributed in Switzerland, a decision you need to evaluate carefully.
As your employer contributed at least the same amount as you did, the funds can be significant. You may not want to see a lump-sum payment taxed in your new country of residency.
In addition, if you recently made buy-backs there may be a blocking period on your pension funds.
Make sure you are protected against death or disability
On a final note, you should carefully consider the aspect of personal protection, since pension funds cover you against the risk of death and disability. If you therefore withdraw your pension funds early, you should make sure you are covered, which means you would need to take a comparable protection coverage with an insurance company.
Also, consider that pension money on a Swiss vested benefit account can be considered as relatively "secure".
«When you move to Switzerland, you may have a lot of questions and concerns relating to your personal tax, social security and pension situation. The Exactio team can support you with these complex matters and work with you in a personal and flexible manner. My name is Karin and I'll be your first contact at Exactio for any tax, social security, pension and payroll related questions.»
Exactio team
Would you like to know on the topic of tax and social security in Switzerland?
All you need to know about Tax & Social security in Switzerland