Optimize your returns: Unlock the potential of your vested benefits account

This is how vested benefit accounts are taxed

There are several tax advantages to a vested benefits or custody account. For one, the capital is exempt from income and wealth tax until it's withdrawn, allowing it to grow tax-efficiently over a longer period of time. In addition, when withdrawn, the capital gains tax is levied at a reduced rate, separately from your income. It may also make sense to withdraw vested benefits in several stages, which can further reduce the tax burden. The details are regulated by cantonal tax laws.  

Investment options for vested benefits

Vested benefits can either be deposited in an interest-bearing account or can be managed actively or passively as part of a securities solution. The securities solution is becoming increasingly popular which is in part because interest rates for a custody account solution are currently between 0 and 0.9 percent – with falling projections. In contrast, a securities solution, for instance with active asset management, offers significantly better potential returns. 

The benchmark for active management

A well-managed active strategy aims to outperform its benchmark index. The objective is not only to achieve a higher return when prices rise, but also to limit losses when the market is falling. In contrast, a passive investment strategy, such as with index funds or ETFs, cannot beat the underlying index, as it aims to replicate it.

When comparing an active strategy to a benchmark index, it is important to remember that the index does not include costs. This is because these indices are, to some extent, ideal representations of a market segment and do not take into account transaction, management or other costs that arise in reality. These costs occur with both passive and active asset management which reduce the net return accordingly.

The legal framework 

From a legal perspective, it should be noted that, in accordance with the Ordinance on Occupational Retirement, Survivors' and Disability Pension Plans (BVV2), the holder of a vested benefits account is not authorized to manage their own pension assets or to instruct an asset manager to buy or sell securities or other investment instruments.

Only the vested benefits foundation can give a direct order to an asset manager. This means that the client is only free to choose the asset manager and the investment strategy. The client has no influence on the instruments used or on tactical over- or underweighting.

The investment guidelines of the BVV2 are generally strict. Pension funds are required to diversify their investments appropriately and to limit risks. In addition, the institutions are obliged to adhere to a limited range of certain investment categories such as equities, real estate and alternative investments.

Tailor-made solutions

To account for fluctuations in the financial markets, an investment horizon of at least 5 years and a broad diversification of assets should be aimed for. A growth-oriented investment strategy can also be considered, depending on risk appetite and financial objectives. A more aggressive investment strategy can potentially offer higher returns, but also involves higher risk.

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