What happens to the balance in the vested benefits account in the event of death? In this article, we clarify how the funds are distributed and to whom. We will also explain how you can change the beneficiary order during your lifetime. Additionally, we discuss what next of kin can do and the taxes involved.
Table of contents
Who inherits the vested benefits account in the event of death?
When a person passes away, their vested benefits account is usually paid out as a lump sum to the beneficiaries. This means that the surviving family members receive a single payment, and it is uncommon for an annuity to be issued instead.
It is important to note that the disposition of the deceased person’s vested benefits account is governed not by inheritance law, but by the Vested Benefits Ordninance (only in German, French and Italian). Anyone wishing to alter the order of beneficiaries must adhere to the requirements outlined in this ordinance.
Order of beneficiaries
The order of beneficiaries is organized into four groups, structured in a cascading manner. In the event of death, only one group is considered at a time.
Group 2 receives the credit only if there are no beneficiaries from Group 1. Group 3 is considered only if there are no beneficiaries from Groups 1 and 2, and so on. If there are multiple beneficiaries within a group, the pension fund credit is divided equally among them. For example, if three people are entitled to the credit, each will receive one-third of the total amount.
| Group 1 |
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| Group 2 |
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| Group 3 |
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| Group 4 |
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How can I change the order of beneficiaries?
You can adjust the order of beneficiaries as allowed by the ordinance, but it’s essential to inform your vested benefits foundation of any changes. Typically, the foundation will provide a form to specify the order of beneficiaries.
You have the following options:
- You can designate specific amounts for each beneficiary within a group. For example, you might allocate 50% to the surviving spouse and 25% each to two children.
- You can include individuals from Group 2 in Group 1.
However, it is not possible to completely exclude someone from a group. However, it is unclear when a reduction in benefits can be classified as an exclusion.
Claims of married couples and concubinage
Surviving spouses or registered partners are entitled to benefits in Group 1. Additionally, divorced spouses or former partners in a dissolved registered partnership may also qualify for benefits in this category, provided they meet two conditions:
- The marriage or registered partnership must have lasted for at least 10 years.
- At the time of divorce or the dissolution of the partnership, the individual must have been granted a pension under Art. 124, para. 1 or Art. 126, para. 1, which is still being paid out today.
It is important to note that the claim of the divorced individual may be adjusted. This adjustment occurs if the amount they would receive from the OASI survivors’ benefits exceeds what was awarded to them in the divorce judgment.
Regulations for concubinage
Unmarried or unregistered partners are legally entitled to benefits and fall under group 2. For this to apply, the deceased and the surviving partner must have lived together continuously for the last five years prior to the death. It’s important to note that people of the same sex can also form a partnership.
Regulations for people with joint children
A surviving individual who is responsible for the care of one or more joint children is classified in Group 2. Child support must be provided until the child reaches the age of majority or completes their education. The law does not specify the latest date by which this education must be finished.
Claims of surviving children
The children of the deceased are included in the first group if they were eligible for an orphan’s pension at the time of death. Foster children can also receive a pension if the deceased was responsible for their care. The following individuals are entitled to an orphan’s pension in the event of a parent’s death:
- those who are not yet of full age, i.e. under 18, or 25
- if they are still in education or receiving a full IV pension.
“Independent” children are primarily adult children who are no longer in education. They are classified in group 3 because they
- were not eligible for an orphan’s pension at the time of death or
- were no longer financially supported by the deceased parent.
Other Beneficiaries
Who is considered a substantially supported person?
Individuals who received substantial financial support from the deceased belong to group 2. However, defining what constitutes “substantial” support can be difficult.
This ambiguity is often the focus of many court cases. In one federal court ruling, it was determined that support is considered substantial if it accounts for less than 20% of a person’s cost of living. Additionally, support is deemed substantial if it has been provided for a minimum of two years.
Parents and Siblings
Parents and siblings are included in group 3. Half-siblings are considered to be the same as full siblings. However, step-siblings do not receive anything because they are not biologically related.
What should I do as a surviving family member?
As a surviving family member, it is important to report the death to the vested benefits foundation. You will typically need a death certificate and additional documentation for this process. For instance, the vested benefits foundation of finpension requires the following documents:
- Official identification of the beneficiaries or their legal guardians
- Certificate of inheritance
- Certificate of registered marital status of the deceased
- Certificate of executorship
- Divorce decrees of divorced marriages/dissolved partnerships
- In the case of inheritance transfers, the inheritance transfer protocol
- Confirmation of the bank details (e.g. opening confirmation)
Depending on the beneficiary, further documents may be required.
Did the deceased have a vested benefits account with finpension? Please contact us via e-mail or call us. We will be happy to assist you.
Taxation in the event of death
In Switzerland, taxes are applicable on the payout of vested benefits assets. This rule also extends to the balance of a deceased person’s account.
Fortunately, you don’t need to worry about managing the tax invoice yourself. The vested benefits foundation will report the payment to the tax authorities on your behalf. The relevant cantonal tax authority will then send the beneficiaries an invoice in a timely manner.
For beneficiaries who reside abroad, taxes are deducted at the source. This means that the tax is taken from the total amount before the payout is made, and the vested benefits institution transfers this amount to the state. As a result, only the net amount is disbursed to the beneficiary.
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