At the time of leaving the pension fund, it is possible to have the pension fund assets paid out to two different vested benefits institutions. This is also referred to as pension fund splitting*.
In this article, we show you exactly how Pension Fund splitting works and what advantages it has.
*Not to be confused with splitting in the event of divorce.
Content
| When is Pension Fund splitting possible? |
| How can a Pension Fund splitting be made? |
| What are the advantages of a Pension Fund split? |
When is Pension Fund splitting possible?
As already mentioned, PF-splitting is only possible when you leave the pension fund. Later, for example when the money is in a vested benefits account, it can no longer be splitted (Exception: WEF-Vorbezug). It can still be transferred to another provider, but only as a total amount.
Whether or not you can split your pension assets depends on whether or not you already have a new employer. Your previous pension fund will ask you this question and depending on your answer, splitting is possible or not:
| New employer? | Split possible? | Process |
| Yes | No | Your previous pension fund will transfer your total pension assets directly to your new pension fund. They may not make a payment to a vested benefits account if they know that you have a new employer directly*. For the transfer, you must give your previous pension fund the payment instuctions for your new pension fund. You will usually receive these account details automatically. Otherwise you can contact them. |
| No | Yes | Your previous pension fund will ask you to open a vested benefits account and inform them about the account details. Note: There is no legal obligation for you to be made aware of the splitting option by your previous pension fund. |
*In general, your previous pension provider must transfer your pension assets within 30 days (to the new PF or to a vested benefits account) after it has received the account details from you. Otherwise, your previous pension fund must pay default interest. (vgl. Art. 2 Abs. 4 Freizügigkeitsgesetz).
How can a Pension Fund splitting be made?
First of all, we would like to go over the “groundrules” again, which the Federal Council lays down in Art. 12 Freizügigkeitsverordnung:
- A split is possible in two parts at the most, i.e. not in three or four parts, but always only in two. However, this does not mean that you can only have two vested benefits accounts. If you leave a PF more than once, you can also have more than two vested benefits accounts.
- It is mandatory to transfer the two parts to two different vested benefits institutions. However, the two vested benefits institutions selected by you may be managed by the same company (e.g. finpension AG).
Now we will go into the different variants of how the pension assets can be divided.
50 / 50
The first option is to split the PF assets into two equal parts (50% each). This way of splitting, we observe most in practice. It looks like this:
Mandatory / Non-mandatory
Another option is to divide the pension assets into the mandatory part and the non-mandatory part.
This approach is used less often. It is preferred if the extra-mandatory part is not or does not have to be included in the new pension fund.
One part is rounded, the other contains the rest
With this approach one part of the vested benefits is rounded and the other just contains the rest. For example for a vested benefit of CHF 378,230.25, this would look like this:
We see this often with customers who need a certain amount in the foreseeable future (e.g. for a house purchase*) and then want to withdraw one of the two accounts in full.
*Since a partial withdrawal from a vested benefits account is also possible for residential property, this procedure is not mandatory for a advance WEF-withdrawal.
Tax-motivated asymmetric splitting
If someone is already within the range of the maximum tax progression with half of the PF assets, asymmetrical splitting is worthwhile.
Example: Pension fund assets of CHF 5’000’000.
| City | Taxes on withdrawal without a split (CHF 5’000’000) | Taxes on withdrawal with symmetrical split (2 x CHF 2’500’000) | Taxes on withdrawal with asymmetrical split (CHF 200’000 / CHF 4’800’000) |
| Lucerne | CHF 442’750 | CHF 442’750 | CHF 438’810 |
As you can see from this example, a symmetrical 50/50 split is of no “use”. This is because despite the split, both parts end up in the highest progression level. Only with an asymmetrical split can one part be “pushed” below the maximum progression level. You then pay less taxes on this part of the withdrawal.
Anticipation of an equally high amount upon termination
Finally, there is one last option that comes into question if you plan to put one part in a vested benefits account and invest the other in securities.
Because then it would be possible to calculate how high the two vested benefits must be today so that they will be the same at the time of withdrawal (with different expected returns for the account and the securities solution).
However, we deliberately use the subjunctive “could” here because this way, although we discuss it with our clients from time to time, is rarely put into practice. Many prefer a simpler solution.
Note: Withdrawals within the same year are added up
When planning, please note that withdrawals from both the second and third pillars are counted together if they occur in the same year. This also applies to withdrawals by spouses. So if the wife makes a withdrawal of CHF 500,000 from a vested benefits account in 2030 and the husband makes a Pillar 3a withdrawal of CHF 250,000 in the same year, the tax that applies to an amount of CHF 750,000 will apply.
The staggered payout should therefore always be considered holistically.
What are the advantages of a Pension Fund split?
Last but not least: What are actually the advantages of a PF-split?
1. Advantage: More investment flexibility
A split gives you more flexibility when it comes to investing the funds. Specifically, the split allows you to combine two different forms of investment, for example an account and a securities solution.
Basically, there are three possible forms of investment available to you:
- Account
- Portfolio (Investmentsolution)
- Insurance
In the majority of cases, the vested benefits account comes into play. For people with a longer investment horizon, a custody account solution can also be interesting. We generally advise against the insurance solution, unless there is a need for insurance and this need cannot be financed from free funds.
2. Advantage: Staggered withdrawal reduces the taxes
Another advantage of PF splitting is that you can withdraw the two pots later on a staggered basis. The staggered payout reduces the taxes.
We will give you an example. Pension assets: CHF 500’000.
| City | Taxes on withdrawal without splitting (CHF 500’000) | Taxes on withdrawal of 2 x 50 % (2 x CHF 250’000) |
| Zürich | CHF 56’337 | CHF 34’520 |
| Basel | CHF 47’382 | CHF 41’564 |
| Bern | CHF 42’243 | CHF 33’386 |
3. Advantage: Staggered withdrawal more in line with liquidity needs
Many clients see the flexibility in withdrawals as another advantage (in addition to the tax advantage). If you need money, you don’t have to withdraw it all at once thanks to splitting, but can have the pension assets paid out in two tranches.
Learn more about this topic
You can find more basic information, including on the topic of the obligation to reinstate the pension fund, in our article «Termination: Where to deposit the money from the pension fund?».