Termination: Where to deposit the money from the pension fund?

If you are laid off or move to another job, the question arises as to what you should do with your pension fund assets.

But before getting into the real issue, we would like to touch on a few other points in this context, which may be almost more urgent:

• You remain insured for the risks of death and disability with your previous pension fund for one month after the date of departure.
• If you register with your regional employment centre (RAV), you are automatically insured for the risks of death and disability with the BVG contingency fund from the day on which you receive your first unemployment benefit.
• It is also possible to continue the savings process with the BVG contingency fund (pension plan WO20). However, a corresponding application must be submitted to the BVG-Receiving Institution within 90 days of leaving. In addition, the savings contributions must henceforth be paid by the employee himself.

What to do with the pension fund?

So now to the actual topic and the question of what to do with the assets from the pension fund?

Do you already have a new job?

If you already have a new job, your entire retirement assets will be transferred to the pension scheme of your new employer.

Exception: You bring along more capital than you need to reach the maximum pension in the new pension fund. In this case, you have the choice of having the surplus paid out to a vested benefits account or contributing it anyway.

If you cannot decide what to do with the surplus capital, ask the pension fund for the following information:

• What is the interest rate on the excess amount?
• How high is the pension fund’s coverage ratio? If this is close to or below 100 percent, it must be expected that the interest rate will continue to fall.

Finally, compare the pension fund offer with the options you have in the event of vested benefits.

You can deposit the vested benefits in an account. However, vested benefits accounts generate almost no return. However, there is also the option of investing the money in securities through a vested benefits foundation. Whether this could be an option for you depends largely on how old you are.

Please note that the withdrawal of vested benefits can be deferred for up to five years beyond the normal retirement age. If you make use of this option, increase the investment horizon to 69 (women) or 70 (men). From 2030, it will no longer be possible to simply defer drawing vested benefits beyond the normal retirement age. From then on, proof of continued employment will be required.

Considering that the pension funds already redistribute seven billion Swiss francs a year from the active population to pensioners, there is an advantage in being able to invest the vested benefit assets in a self-determined way without redistribution in the long term.

You do not (yet) have a new job?

If you do not immediately start a new job, the retirement savings will be paid out. However, you cannot simply dispose of it freely, as it is solely transferred to a vested benefits foundation.

You are free to choose the vested benefits institution. You can even have the termination benefit paid out to two different vested benefits foundations. The second option has the following advantages:

• You remain more flexible in terms of how you invest the money. You can pursue two different strategies, investing part of it in securities and depositing the other part in an account.
• You can withdraw the accounts in staggered amounts at a later date, which usually results in a lower capital withdrawal tax.
• When you take up a new job, you may be able to keep one of the two accounts, as long as you bring in enough capital without one of them.

Which vested benefits solution suits you and your situation depend primarily on your investment horizon. Do you think that you will soon have to return to work and then transfer the money to the new pension fund? Then a vested benefits account is recommended. If you do not expect to contribute the capital to a pension fund until you retire, investing in securities can be worthwhile.

You have six months to decide how to invest your vested benefits. At the end of this period, the pension fund will transfer the retirement savings to the BVG contingency fund. Until disbursement, it must pay you interest on the capital at the BVG minimum interest rate.

If you have notified your pension fund of the instructions for the transfer in the required form, the termination benefit must be transferred to you within 30 days. For late payments, you are entitled to default interest.

Special case: termination from the age of 58

From the age of 58, the legislator allows retirement. So if you lose or quit your job at 58 and the pension fund provides for retirement at this age, the question arises as to what you intend to do:

• Persons who intend to continue working and register with the RAV can demand that the retirement assets be paid out to a vested benefits institution. This allows it to be transferred later to the pension fund of the new employer.
• If you do not continue working, the retirement assets are converted into a pension. Possibly you can also withdraw the capital or part of it.

What happens if I withhold vested benefits credit from the new pension fund?

In principle, the new pension fund cannot know whether you have vested benefits relationships and if so, how many. Although you are obliged by law to transfer all your vested benefits to the new pension fund of your new employer (until the maximum regulatory benefits are reached), no one can check whether you actually do so.

If you do not bring in capital, this can have the following disadvantages:

• You may have less protection against the risks of death and disability. There are pension fund models in which the amount of retirement savings has an influence on the amount of disability, widows’ and orphans’ pensions. There are also models where there is no relationship.
• The capital not brought in cannot later be drawn as a pension. Vested benefits foundations generally do not offer pensions and if they do, they offer relatively worse pensions than pension funds.
• If you intend to bring in your vested benefits at a later point in time, it is not guaranteed that the Pension Fund will accept them.

By the way, where the money is placed in the 2nd pillar has no influence on the potential for voluntary purchases. Vested benefit assets must also be added to the retirement assets of the pension fund. This means that you cannot increase the potential for voluntary purchases by not contributing everything to the pension fund.