Immigration in a nutshell - Volume 4
Our blog series provides practical knowledge from the field of business immigration.
Even though many expats find a permanent new home in Switzerland, some return home for work or family reasons or set off for new shores. Learn which regulations apply to your pension plan when you leave Switzerland - and the best way to handle it.
Brief overview of the 3 pillars of the Swiss pension system
Switzerland's pension system consists of three pillars: state, occupational and private pension provision. The 1st pillar, the AHV (or OASI) (old-age, survivors and disability insurance), serves to secure the existence. The 2nd pillar, the occupational pension plan (BVG), is intended to maintain the accustomed standard of living in old age. Both the 1st and the 2nd pillar are obligatory. However, it is standard practice to make higher contributions to occupational pension plans than required by law, since the corresponding infrastructure is already in place. Such pension benefits are referred to as "over-obligatory" benefits (Überobligatorium).
With the voluntary 3rd pillar, a private pension can be built up, as it can be individually designed through various – tax-advantaged – savings and insurance solutions.
What happens to my AHV contributions?
The AHV contributions paid in are paid out to the pensioners on an ongoing basis and thus do not form a personal retirement capital for the individual. In fact, provided that one pays AHV contributions for at least one year, one is entitled to a future old-age pension. Citizens of EU and EFTA countries, as well as countries with which Switzerland has concluded a social security agreement[1], retain this entitlement even if they leave Switzerland. To be entitled to AHV benefits in old age, you must apply to the relevant compensation office, which will provide you with the necessary information. Employees can find out which compensation office is responsible through their employer. The compensation office submits the file to the Federal Swiss Compensation Office.
The situation is different for nationals of a country with which Switzerland has not concluded a corresponding agreement. In this case, the entitlement to an AHV pension lapses when the person leaves Switzerland. Under certain conditions, however, it is possible to have the AHV contributions refunded without interest. The application for reimbursement can already be submitted before the intended departure, provided that a confirmation of departure from Switzerland is available. The payment will be made when the person is definitely residing abroad (learn more about the fate of AHV contributions after returning to the home country here).
What happens to my occupational pension fund assets?
Occupational pension assets are personally accrued retirement assets. In the event of a departure from Switzerland, these pension fund assets can in principle be paid out. However, a distinction is made between the mandatory and the "over-obligatory" part. In the case of a departure to an EU or EFTA country, as a rule only the "over-obligatory" part of the pension fund can be cashed out. The mandatory pension fund assets, on the other hand, are transferred to a vested benefits account. The credit balance on the vested benefits account becomes due upon reaching the regular AHV retirement age and can be withdrawn five years earlier at the earliest. Exceptions exist in the case of financing owner-occupied residential property or taking up self-employment. However, anyone who emigrates to a country outside the EU and EFTA can have their entire pension fund assets paid out when they leave Switzerland.
Since December 1, 2021, this applies also to the United Kingdom, as the free movement of persons in the area of occupational benefits is not covered by the new agreement between Switzerland and the UK. Consequently, all persons who have already moved their residence to the UK or who are leaving Switzerland for the UK will still be able to request cash payment of their entire occupational pension benefits (mandatory and "over-obligatory").
What happens to my 3rd pillar assets?
Voluntary third-pillar pension benefits are generally paid out upon departure from Switzerland, regardless of the person's nationality and the country of departure.
What are the tax consequences of a payout?
A withholding tax is due on the capital payment from the second and third pillars. The amount of this tax varies considerably from canton to canton, whereby taxation depends on the canton in which the vested benefits foundation is domiciled. The Swiss withholding tax can be reclaimed within a period of three years if a double taxation agreement exists with the new country of residence. For Swiss withholding taxes that cannot be reclaimed, a credit under local law in the new country of domicile must be examined.
If you have any further questions, please do not hesitate to contact the Immigration Team.
[1] Australia, Canada, Chile, China, Bosnia and Herzegovina, India, Israel, Japan, Macedonia, Montenegro, Philippines, San Marino, Serbia, South Korea, Turkey, Uruguay and USA.
Authors: Urs Haegi, Florian Kambor
