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Vested benefits account in Switzerland: managing your pension assets wisely
A vested benefits account plays a key role in Swiss retirement planning. It safeguards your accumulated pension fund assets (pillar 2) when you are temporarily not covered by a pension fund.
In this article, you will find everything you need to know about vested benefits accounts: what they are, their advantages, how to choose the right one, and the most common questions asked by savers. We will provide practical tips on managing your pension assets efficiently and guide you on what to look for when selecting a vested benefits account.
Whether you are between jobs, moving abroad, or becoming self-employed, having the right knowledge will help you make the best decisions for your financial future.
What is a vested benefits account?
Swiss law requires that money contributed to a pension fund remains within the pension system until you become eligible for withdrawal. You cannot access these funds freely. If you leave a pension fund, the money must be transferred to a new pension scheme or to a vested benefits account. This ensures that your pension assets remain protected and dedicated to your retirement.
A vested benefits account is needed whenever you exit a pension fund without immediately transferring your pension assets to a new scheme. Typical situations include:
Changing jobs with a gap in employment: If you leave a job and do not start a new one right away, your pension assets are transferred to a vested benefits account in the meantime.
Career break or time off: Whether you take a sabbatical, pursue further education, travel the world, go on parental leave, or experience unemployment, you can "park" your pension assets in a vested benefits account.
Early retirement: If you retire before the official retirement age or leave the workforce without immediately drawing a pension, your pension fund assets are typically transferred to a vested benefits account, where they remain locked until at least five years before you reach retirement age.
Other scenarios: You will also need a vested benefits account if you become self-employed, temporarily leave Switzerland, or take a job that does not require pension fund contributions.
Simply put, a vested benefits account is the solution whenever you leave a pension fund and do not have a new employer offering a pension scheme.
Benefits of a vested benefits account
A vested benefits account does more than just hold your pension assets. It offers several advantages that go beyond mere safekeeping.
Flexible solutions for different life situations
A vested benefits account provides flexibility in various circumstances. Whether you are switching jobs, unemployed, on a sabbatical, or on parental leave, your pension assets remain securely stored for your future. The account can be adapted to your needs—for instance, if you return to work, your funds can be seamlessly transferred to your new employer's pension scheme.
Additionally, you are allowed to maintain up to two vested benefits accounts with different providers. This gives you more flexibility, such as splitting larger balances. Ultimately, a vested benefits account ensures financial security during periods without a pension fund, allowing you to reintegrate into the pension system when needed.
Tax benefits
As long as your money is in a vested benefits account, it is exempt from income and wealth taxes. Interest and potential capital gains are reinvested tax-free. Taxation occurs only upon withdrawal, typically at a reduced rate (separate from your regular income). This can significantly enhance returns, as your assets can grow undiminished. If you move abroad, you may also benefit from favourable withholding tax rates when withdrawing your pension assets.
Legal protection
Vested benefits accounts offer strong legal security. Your funds remain protected from third-party claims (such as debt collection) and can only be used for retirement. Bank-held vested benefits accounts are also covered by Swiss deposit protection regulations: cash balances are legally insured up to 100'000 CHF per customer. If held at a cantonal bank with a state guarantee, your entire balance is protected. If your vested benefits assets are invested in securities, they legally belong to you and would remain protected even in the event of a bank insolvency. This makes a vested benefits account more secure than a regular savings account, ensuring that your pension assets are well protected even in uncertain times.
Investment opportunities for higher returns
Since interest rates on vested benefits accounts are often low (and at times close to zero), investing in pension funds or other securities can be an attractive option. A long-term investment horizon of several years is crucial to ride out market fluctuations and benefit from compound interest. While investments carry risks, they also allow you to participate in market growth even if you take a career break. Many providers offer flexible investment strategies tailored to your risk profile, with the option to adjust them over time.
Early withdrawal options
In addition to these advantages, a vested benefits account also allows early withdrawals under certain conditions. Similar to pension funds, you can withdraw money for purchasing a home (owner-occupied property) or for becoming self-employed. You can also access your funds early if you retire up to five years before the official retirement age or if you qualify for a full disability pension. These legal exceptions provide additional flexibility in specific life situations, as long as you comply with the relevant regulations.
Frequently asked questions about vested benefits accounts
Below, we answer some of the most frequently asked questions about vested benefits accounts, based on what many clients encounter in practice.
How do I open a vested benefits account?
If you leave a pension fund, you are usually responsible for taking action. Opening a vested benefits account is simple: you can set one up with a bank, insurance company, or dedicated vested benefits foundation of your choice. Once the account is opened, you provide the details to your former pension fund, which will then transfer your assets.
How and when can I close my vested benefits account?
A vested benefits account is usually closed when its purpose no longer applies—either when you join a new pension fund or when you are eligible to withdraw your funds.
If you start a new job and re-enter a pension fund, your vested benefits account must be closed, and the full balance transferred to your new employer’s pension scheme. The transfer process is straightforward: your vested benefits provider transfers your capital (including accrued interest) to your new pension fund, and the account is closed.
If you remain without a pension fund until retirement, your assets stay in the vested benefits account until you reach official retirement age. You must withdraw the funds no later than five years after reaching the reference retirement age, at which point the account will be closed. In most cases, your vested benefits assets are paid out as a lump sum upon retirement, which automatically leads to the account's closure.
However, in certain exceptional cases, early withdrawals are possible, as specified by the vested benefits law.
What are the fees?
Fees and costs are an important factor when choosing a vested benefits account. The good news is that many providers do not charge direct account management fees. Basic accounts (without investments) are often free of charge.
Banks and insurers typically generate revenue indirectly, for example, through investments or custodial fees on assets. Some vested benefits foundations charge small annual fees for securities management or compensate for administrative costs through slightly lower interest rates.
It is advisable to check in advance which services are free and where fees may apply. Comparing providers carefully can help you avoid unnecessary costs and find the best option for your needs.
Tips for choosing the right vested benefits account
Selecting the right vested benefits account can have a significant long-term financial impact. Since there are many providers in Switzerland (banks, insurance companies, and independent foundations), a careful comparison is worthwhile. Consider the following factors when making your decision:
Interest rates and investment options: Compare interest rates, as some providers offer better returns than others. If you plan to keep your money in the account for a long time, interest rates matter. Additionally, check whether investment opportunities like pension funds or securities portfolios are available.
Fees and cost structure: Most providers do not charge basic fees, but a detailed cost comparison is still essential to avoid hidden charges.
Security and provider type: Choose a reputable provider. Vested benefits foundations are regulated, but there are differences in security. Bank-held accounts are protected up to 100'000 CHF under deposit insurance, while insurance-based solutions have different protection mechanisms.
Flexibility and service: A good vested benefits account should allow easy and cost-free transfers to another provider if needed.
Conclusion: a vested benefits account is a key part of your pension planning
A vested benefits account is an essential tool for managing your pension assets securely and tax-efficiently. By choosing the right provider early on, you can make the most of your pension savings. Well-informed decisions ensure your retirement funds remain protected and profitable, even during career transitions.
