Important change to the withdrawal of your vested benefits
Published on 27.06.2023 CEST
Find out how this change will affect your pension
As part of the OASI 21 reform, a revision of the law on the withdrawal of vested benefits (2nd pillar) will also enter into force on January 1, 2024. If you are planning on retiring soon, the change could affect you. It is therefore advisable to review your pension situation depending on your circumstances.
Are you planning on retiring soon? If you are, the current legal situation gives you a certain amount of flexibility when it comes to your vested benefits (occupational pension plan, 2nd pillar). You can leave your money in the pension cycle for up to five years after the reference age. This is now set to change.
In addition to the provisions implementing the OASI 21 reform, the Federal Council also passed amended Article 16 para. 1 of the Ordinance on Vested Benefits (FZV) on August 30, 2023.
The FSIO (Federal Social Insurance Office) announcement stipulates that people who have to withdraw their vested benefits in the years from 2024 to 2029 because they
- will have reached or exceeded the reference age,
- and are no longer gainfully employed
may postpone the payment of these benefits until December 31, 2029, but no later than five years beyond the reference age.
The transition period of five years was created so that policyholders who have already reached the reference age (or who will soon reach this age) on the entry into force of the OASI reform on January 1, 2024 have enough time to take this change into consideration in their pension planning. Furthermore, the transition period will give vested benefit institutions time to adapt their processes and rules.
The deferred withdrawal of vested benefits by policyholders not engaged in gainful employment will then cease definitively as of January 1, 2030. As of that point, the same rules will then apply to pillar 3a balances and vested pension benefits.
In practice, the question will arise as to how proof of employment can or should be provided and which documents the pension fund will accept, or which forms and documents need to be submitted. This transition period of five years means that funds now have sufficient time to clarify and elaborate on these and other questions.
The subject of evidencing gainful employment is elaborated on as follows in the FISO’s “Notes on the changes to the Ordinance”: “The condition of effective ongoing employment is met if the insured person provides evidence of this, for instance, in the form of a salary statement, an employment contract or a confirmation from their employer. If the insured person is self-employed, they may for example provide details of a business account. The law does not provide for any minimum degree of employment.”
Background on vested benefits
If you interrupt your employment for a longer period of time, move abroad or become self-employed, you can “park” the benefits from your occupational pension in vested benefits accounts and policies. Vested benefits are actually intended as a temporary solution, for example when you change jobs or leave Switzerland on a temporary basis. However, these accounts often continue to exist until retirement age. In many cases, this can also be beneficial in terms of tax. If the whole of your occupational pension is split across several accounts instead of being in one account, you have more flexibility when it comes to withdrawing it.
If you stop working on a temporary basis, for example, you can benefit from splitting your pension across two vested benefits accounts.
Background on the revision of the law
In 2022, Swiss voters accepted two OASI proposals by a narrow margin. Among other aspects, these concerned raising the retirement age for women to 65 and increasing VAT. The Federal Council then decided that the OASI reform would enter into force on January 1, 2024 and had the ordinance drawn up for the law. This also involved 2nd pillar adjustments.
You can find more information on the OASI reform and the effects of this blog article.
Advantage of flexibility when withdrawing pension benefits
If you withdraw pension capital (from the 2nd or 3rd pillar), taxes are due on it. You pay tax at a higher rate if you withdraw all your vested benefits and 3a assets in the same year, especially in cantons with strong progressive taxation. Conversely, you can save on tax if you stagger individual payments over several years. The revised law is more restrictive here. Under normal circumstances, it makes sense to leave your retirement capital in the tax-privileged environment of the second pillar for as long as possible. Under certain circumstances, however, it may be worth tackling future withdrawals from pillars 1 to 3 at an early stage. This will allow to you to define a withdrawal plan that is in line with your savings goals and general planning for your third stage of life.
We would be happy to advise you personally on your pension planning and address your individual situation. You can find out what options you have and what you should pay attention to in the context of the current change in the law. If you plan on retiring soon, we strongly recommend that you reconsider any withdrawal and tax plans that you have already made. Contact us for a non-binding initial consultation.