Category: Blog Articles

Reading Time: 9 minutes

In today’s globalized world, the decision to emigrate from one’s home country is not uncommon. It is no different for the Swiss. Emigrating from Switzerland is a life-changing event that requires thorough planning, including financial security and retirement planning.

The Swiss pension system is designed to provide financial stability. However, moving to another country can raise questions about the future of these benefits. What happens to AHV when I emigrate and how do I safeguard my pension fund assets?

This guide focuses on AHV and pension fund when emigrating from Switzerland. You can use it to draw up your own personal checklist of what you need to bear in mind to safeguard your pension assets abroad.

The most important facts in brief

• Leaving Switzerland requires sound retirement planning.
• Depending on your future citizenship and the country of emigration, different regulations apply.
• Switzerland has concluded social security agreements with many countries in order to secure the retirement provisions of the Swiss even after emigration.
• If there is no social security agreement with Switzerland, the previous contributions can be paid out if necessary and the old-age provision can be completely rebuilt.
• Voluntary insurance in the AHV is possible in certain cases.

Leaving Switzerland: Clarify finances with these questions

There are many financial aspects to consider when emigrating from Switzerland. The most important questions you should clarify before you take the step abroad are:

Emigrating or another temporary center of life?

Depending on whether the move is permanent or temporary, this will affect pension rights, health insurance and taxes. For temporary stays, different rules may apply than for a permanent move abroad.

What happens to real estate and household effects?

Depending on the living situation in the destination country, selling or renting out the real estate you previously used yourself may be an option. Whether you are a tenant or an owner, consider whether it makes sense to sell or give away parts of your household goods. It is advisable to draw up a plan for dealing with the various valuables at an early stage. Finally, space constraints as well as a different climate may necessitate the purchase of new furnishings.

What are the future financial needs?

Determine your financial needs for moving and living in your destination country. Consider ongoing living expenses, rent, insurance and possible unforeseen expenses. Detailed financial planning will help you get a realistic estimate of your needs and be financially well prepared for your move abroad. Important: The cost of living and housing expenses vary from country to country. Furthermore, there are higher costs for mobility in territorial countries such as Norway.

What is the composition of income in the country of emigration?

Research job opportunities and find out about local salary structures. If you are continuing your life in another country, you should also be informed about employment opportunities if employment is currently fixed. In this context, check whether you may be able to draw on income from assets or inheritances.

How is pension provision organized in the new home country?

Not all countries organize pension provision for life in old age in the same way as Switzerland’s 3-pillar principle. In the USA, for example, occupational pension provision is voluntary and investment in the stock market is widespread. In Germany, for example, the tax treatment of occupational pension provision is organized, but the employer is not generally obliged to contribute to it. Furthermore, there are various implementation channels. A pension system comparable to the 3-pillar principle in Switzerland exists in Sweden.

Swiss pension plan: Use options for early withdrawal or continue?

This fundamental question can only be answered once the retirement provision options in the country of emigration are known and compared in detail. The tax implications both in Switzerland and in the destination country must also be taken into account.

Essential: What health insurance options are available in the new home country?

It is essential to check the health insurance options in the destination country before emigrating from Switzerland. In some countries there is compulsory insurance, while in others private or voluntary insurance is available. Furthermore, there are mixed systems, such as the insurance of civil servants in Germany.

It is therefore important to understand the insurance coverage in the destination country to ensure you are adequately covered. Often, private health insurance is required to ensure comprehensive coverage.

Emigrating to an EU or EFTA country

Switzerland has signed agreements with several countries. These regulate the social security status of people who move their residence or employment from Switzerland to one of these countries and vice versa.

The most comprehensive in this context is the Agreement on the Free Movement of Persons with the EU, which regulates social security with all EU member states. There is also a corresponding agreement with EFTA, which, in addition to Switzerland, consists of the member states Iceland, Liechtenstein and Norway.

Switzerland has concluded further bilateral social security agreements with the following countries:

• Australia
• Bosnia
• Herzegovina
• Brazil
• Chile
• China
• India
• Israel
• Japan
• Canada
• Kosovo
• Macedonia
• Montenegro
• Philippines
• Republic of San Marino
• Serbia
• South Korea
• Tunisia
• Turkey
• Uruguay
• United States

Social security agreements with destination country: AHV and emigration from Switzerland

The aim of the social security agreements is to maintain the state pension scheme for people who leave Switzerland. You are therefore entitled to a pension if you have paid contributions to the AHV for at least one year and move to a country with which there is a social security agreement.

Two cases must be distinguished:

• Posting by Swiss employer: persons who are posted by a Swiss company to an EU or EFTA country and are paid by this company remain compulsorily insured in Switzerland as Swiss abroad. In the case of a posting of longer than 24 months, the employer must apply for an extension.
• Leaving Switzerland for good: If you emigrate to a country with which Switzerland has concluded a social security agreement, you are covered by the social security system of the country of emigration. As a result, when you retire, you will receive an additional pension from the social security system of the destination country in addition to the AHV pension (corresponding to the contributions paid in).

The Swiss Compensation Office (SAK) is responsible for applying the social security agreement. This is also where the pension is determined and paid out. An advance pension withdrawal is also applied for at the compensation office.

Social security agreement with destination country: What happens to the pension fund assets?

The obligation to contribute to the second pillar ends with the termination of the employment relationship in Switzerland. If there is coverage against the risks of death, disability and old age in the countries with social security agreements, only the non-compulsory portion can be withdrawn. The compulsory part remains in a vested benefits account Vested benefits account and can therefore be withdrawn no earlier than five years before the regular retirement date.

Exceptions to the early withdrawal of the pension fund balance exist for the following cases:

• Financing of owner-occupied residential property
• Taking up self-employment

Early retirement: The earliest retirement age for most pension funds is 58. At this age, insured persons can access their retirement assets, either as a lump-sum payment or as a monthly pension. From this point on, residence no longer plays a role. It can therefore be either in Switzerland or in another country.

Emigrating from Switzerland: Emigration country not a country of the EU or EFTA

If you emigrate to a country without a social security agreement with Switzerland, you must consider the following consequences:

• There is no entitlement to an AHV pension.
• In certain cases it is possible to get back already paid AHV contributions without interest.
• The entitlement to supplementary benefits or to unemployment assistance for persons who are dependent on help, support or care will cease. Only persons with permanent residence in Switzerland are entitled to these benefits, regardless of their nationality.
• If necessary, there is the possibility of voluntary insurance in the AHV to close gaps in contributions.

Financial start in the new country: payment of AHV contributions

If you have the nationality of a country that has not concluded a social security agreement with Switzerland, a refund of your AHV contributions is possible when you leave Switzerland permanently.

Furthermore, social security agreements with certain countries also allow for the refund of contributions. These include Brazil, Australia, China, India, South Korea, Uruguay, Tunisia and the Philippines.

The following conditions apply for reimbursement:

• You have made contributions for at least a one-year period.
• You have left Switzerland permanently with your family members (spouse as well as children under the age of 25) or demonstrably intend to do so.
• If children between the ages of 18 and 25 remain in Switzerland, they must have completed their education.

Provided that confirmation of departure is available, you can submit the application for reimbursement before you leave. As soon as you are living abroad, the payment can be made.

Important: The application for reimbursement must be made within five years of reaching retirement age (alternatively death).

AHV refund when emigrating from Switzerland: Taxes

Withholding tax is calculated on the refund of AHV contributions. The total amount of the refund is considered as income. The tariff code D is used for taxation. The tax rate is determined by the Canton of Geneva and can be viewed on its website.

Pension fund payout after emigration

If you emigrate to a country outside the EU/EFTA and there is no social security agreement with this country, you can also have the compulsory part of the second pillar paid out.

Withdrawal of pension fund capital upon emigration: taxation

When you withdraw your pension fund assets, capital gains tax is due in Switzerland. If you have emigrated, however, as a Swiss national living abroad you will pay withholding tax on the paid-out assets, as capital gains tax can no longer be levied.

Your advantage: the withholding tax is usually lower than the capital gains tax, but it also varies from canton to canton.

It is therefore worthwhile, before deregistering from Switzerland, to transfer the capital to a pension fund that is domiciled in a canton with the lowest possible tax rate. In addition, there are double taxation agreements with various countries which provide for the reclaiming of withholding tax. In these cases, the described detour via a tax-friendly canton is not necessary.

Caution: Not all double taxation agreements provide for the reclaiming of withholding tax. In some agreements, the right of taxation is assigned to Switzerland. This means that the withholding tax paid is not refunded.

Continue to pay AHV after emigration: When voluntary payments into the AHV are possible and make sense

If you want to ensure that you receive your full Swiss pension after retirement, you may be able to take out voluntary AHV insurance and pay contributions. This way, you will continue to be covered against the risks of death and disability. The voluntary AHV/IV is individual. This means that the declaration of membership must be submitted by each family member.

The following requirements must be met:

• Citizenship of Switzerland or a country of the EU or EFTA.
• Residence not within the EU or EFTA.
• Contributions must have been paid to the AHV/IV for at least five consecutive years prior to termination of the compulsory AHV/IV.
• Voluntary membership must take place within the first year after compulsory AHV/IV has ended.

Since five percent of the contributions are charged for the administration of the voluntary insurance, voluntary membership must be well considered. However, it can make sense, especially for protection , depending on the personal family situation.

This is to be considered with the assets from the pillar 3a

As a rule, individuals receive their credit balance from the voluntary third pillar paid out when they leave Switzerland. The payout is independent of the nationality or the country of destination. Similar to the early withdrawal from the pension fund, the final withdrawal from the third pillar must be reported and proven to the pension fund.

A withholding tax is levied on the lump-sum payment, which may be reclaimed under a double taxation agreement or credited in the new country of residence. Here, however, it depends on the details of the double taxation agreement.

Take advantage of tax benefits and choose the right time to emigrate

Often opportunities arise spontaneously and the time to leave Switzerland cannot be freely planned. However, if this is possible, the right time can also help to optimize the financial situation. Therefore, below are a few more tips that you should consider depending on your personal situation:

• Deregister your residence: Deregister your residence in Switzerland to ensure that you are no longer eligible for Swiss capital gains tax.
• Tax advice: get professional help from a tax advisor to make sure you know and take into account all the necessary tax aspects for the country you are emigrating to.
• Pre-draw pension fund assets: Many pension funds allow lump sum withdrawals starting at 58 or 60, which may be the start-up capital you need.
• Withdrawingcapital after emigration: If you plan to cash out your pension fund or other investments, the withholding taxes due after emigration are often lower than the Swiss capital gains tax.

Advance pillar 3a assets: Similar to pension fund balances, withholding taxes due after emigration are often more favorable than taxation in Switzerland, even though Pillar 3a withdrawals are taxed at a privileged rate.

Reading Time: 7 minutes

In today’s fast-paced financial landscape and fueled by the recent economic developments, market volatility has become a constant companion for investors. When faced with unpredictable market swings, it’s crucial for long-term investors to maintain a disciplined approach and remain focused on their investment goals.

In this article we point out important techniques and approaches professional investors use in order to navigate through times of uncertainty.

Understanding Market Volatility

The risk of financial instruments and financial markets can be measured in many dimensions. The most common risk definition of a financial instrument or market is its volatility. This statistical measure is called standard deviation and indicates how much a variable, like a price, deviates around its mean.

This deviation can be positive or negative. The positive deviation is the desired deviation to earn returns, while the negative deviation is the undesired one which can cause losses. This is also the reason for the high-risk-high-reward relation.

Market volatility arises from a multitude of factors, including economic conditions, geopolitical events, and investor sentiment. It is vital for investors to understand the causes and effects of market volatility, as well as its inherent nature. By recognizing that volatility is a normal part of investing and also to some extent desired, investors can adopt a mindset that allows them to make rational decisions during turbulent times. These are the times where course is set for future growth.

Reading tips:

• Stock market crash – how should you react?
• Turbulence in the banking sector 2023

Sector Rotation – Taking advantage from non-cyclicality

Non-cyclical sectors are also known as defensive sectors and refer to an industry where the demand is sticky and independent from the overall economic cycle. Examples are consumer staples (basic goods like food or hygiene products) or utilities. The demand in these sectors is very stable as it provides the satisfaction of basic needs like food or heating.

In times of market volatility, it can be beneficial to rotate towards an overweight in non-cyclical sectors and an underweight in cyclical sectors (e.g., luxury goods, automotive industry or airlines), to minimize the negative effect on the portfolio.

Reading tip: Factor Risk Premia: Value, Momentum, Size, and Quality in Recent Years

Staying Disciplined – The Foundation for Long-Term Investing

Humans act emotional and so do financial markets. During periods of heightened market volatility, emotions can run high, leading to impulsive decision-making. However, successful investing requires discipline and a steadfast commitment to long-term objectives.

By staying disciplined, investors can resist the temptation to react to short-term market fluctuations and focus on the fundamental principles of sound investment strategies. This includes having a clear investment plan, sticking to a long-term horizon, and avoiding the urge to make hasty portfolio changes based on market noise or temporary setbacks.

Reading tip: Private financial planning – how to achieve your individual goals

Diversification as a Risk Management Tool

Diversification serves as a potent risk management technique, enabling investors to mitigate the impact of market volatility. By spreading investments across different asset classes, sectors, and geographies, investors can reduce the vulnerability associated with a single investment. A well-diversified portfolio can help cushion the impact of market downturns, as different investments may respond differently to market conditions.

This approach allows investors to capture the potential upside of certain investments while minimizing exposure to the downside risks of others. A high degree of diversification leaves a portfolio only vulnerable to broader market moves, which are indicated by changes in macroeconomic conditions. However, this is the risk well-diversified investors get compensated for with positive returns in the long run.

To implement effective diversification, investors should consider a range of asset classes, including stocks, bonds, cash, and alternative investments. Within each asset class, further diversification can be achieved by investing across different sectors and geographic regions. By allocating assets in a manner that aligns with their risk tolerance and investment goals, investors can create a diversified portfolio that is better equipped to weather market volatility.

Reading tip:

• Investing money in Switzerland: investment strategies and the 1×1 of investing
• Investment Strategy in Focus: The Power of Income Strategy

Rebalancing – Maintaining Optimal Portfolio Alignment

In volatile markets, asset classes may experience divergent performance, leading to imbalances in the portfolio’s asset allocation. Regular portfolio reviews and rebalancing are essential to ensure that the investment strategy remains aligned with the desired risk profile. Rebalancing involves periodically adjusting the portfolio’s asset allocation back to the target allocation. This disciplined approach forces investors to sell assets that have appreciated and buy assets that have underperformed, thereby maintaining the desired risk-reward balance.

When rebalancing, investors should consider their long-term investment objectives, risk tolerance, and the specific characteristics of the assets in their portfolio. It is important to strike a balance between maintaining the desired asset allocation and incurring excessive transaction costs or tax implications. By adhering to a disciplined rebalancing strategy, investors can capitalize on opportunities presented by market volatility, buying undervalued assets and selling overvalued ones. As a result, investors automatically act countercyclically.

Dollar-Cost Averaging – A Strategy for Volatile Markets

Dollar-cost averaging is a time-tested investment strategy that offers unique advantages during volatile market conditions. By consistently investing fixed amounts at regular intervals, regardless of market highs or lows, investors can mitigate the impact of short-term volatility. This approach reduces the risk of making large investments at the wrong time and eliminates the need to time the market accurately.

With dollar-cost averaging, investors benefit from purchasing more shares when prices are low and fewer shares when prices are high. Over time, this strategy can lower the average cost per share and potentially enhance long-term returns.

Implementing dollar-cost averaging is relatively straightforward. Investors can set up automatic investments at regular intervals, such as monthly or quarterly, into their chosen investment vehicles. By consistently investing, regardless of short-term market movements, investors can take advantage of market downturns to acquire more shares at lower prices.

Furthermore, dollar-cost averaging instills discipline and helps investors overcome the emotional bias of trying to time the market. It encourages a systematic and consistent approach to investing, which is key to long-term success.

Risk Management Techniques for Volatile Markets:

Beyond diversification and rebalancing, there are additional risk management techniques available to investors seeking to navigate volatile markets. These techniques can help protect investments during market downturns and limit potential losses. Here are a few risk management tools to consider:

• Stop-Loss Orders: A stop-loss order is a predetermined price at which an investor instructs their broker to sell a security. By setting a stop-loss order, investors can limit their downside risk and protect against significant losses. If the price of the security falls to the specified stop-loss level, the order is triggered, and the security is automatically sold. It must be mentioned however, that stop-loss orders are not a guarantee of a fixed maximum loss. When markets are very volatile, it is possible that prices don’t move in a continuous way but can show so called gaps. This is for example when a price jumps directly from one price to the other without any increments in between. When the stop-loss price is set somewhere in between, the stop-loss order is executed at the lower price, causing a larger loss as indicated by the stop-loss price.
• Trailing Stops: A trailing stop is a dynamic stop-loss order that adjusts as the price of a security rises. It sets a specific percentage or dollar amount below the security’s peak price. If the security’s price declines by the specified percentage or amount, the trailing stop is triggered, and the security is sold. Trailing stops allow investors to protect profits and limit losses as the security’s price fluctuates.
• Options Strategies: Options provide investors with a range of strategies to manage risk. Protective put options, for example, can be used to hedge against potential declines in the value of a portfolio or individual securities. Put options provide the right to sell a security at a predetermined price within a specified timeframe. By purchasing put options, investors can limit their downside risk and protect their portfolio from significant losses. This can be seen as an insurance against downside risk, for which the seller of the insurance must be compensated for. If this kind of protection makes sense or not is highly dependent on the actual price of these insurance contracts. Using options or derivatives in general is only recommended for experienced investors as they inherent as well different kinds of risk.
• Risk-parity portfolio construction: The risk-parity approach is a method of how to determine the weights of each individual instrument within the portfolio. An investor chooses a target volatility of the portfolio according to his risk appetite. Then each instrument is weighted according to the relation between its volatility and the target volatility. Through this method, more volatile instruments are weighted down while less volatile instruments are weighted up. Since this approach is based on historical or implied volatilities, which may differ from the future realized volatility, the realized portfolio volatility can also differ from the target volatility. However, this is still a good an approach to keep portfolio volatility controlled within a certain range.

Conclusion

Effectively navigating volatile markets is an essential skill for long-term investors. By embracing a disciplined approach, understanding market volatility, and implementing robust risk management strategies such as diversification, rebalancing, dollar-cost averaging, and employing risk mitigation tools, investors can thrive amidst market fluctuations.

Remember, successful investing is a journey that requires patience, resilience, and a commitment to long-term goals. By adopting these strategies, investors can confidently steer their portfolios towards enduring financial success and the achievement of their wealth objectives.

It’s important to note that while these strategies can help mitigate the impact of market volatility, they do not guarantee profits or protect against all losses. Investors should carefully consider their risk tolerance, investment goals, and seek professional advice before making investment decisions.

Ultimately, by maintaining a disciplined and informed approach, investors can navigate volatile markets with confidence, stay focused on their long-term objectives, and position themselves for long-term investment success.

Reading Time: 9 minutes

A change of job often means significant changes, not only with regard to your career, but also with regard to your pension plan. Typically, when you change employers, your pension fund also changes. This can mean changes to your pension plan and risk coverage. Therefore, find out about the new conditions early on and make sure that your financial future is still well secured. After all, the change of job should have a positive effect on your future asset situation and retirement provision. The first step is to transfer your pension fund assets.

Whether you are making a transition to a new pension fund, taking an initial career break or venturing into self-employment, this article will inform you about the options and necessary steps.

The most important facts in brief

• A change of job usually also means a change of pension fund.
• The transfer of retirement assets is regulated by law.
• The pension funds in Switzerland each have their own regulations.
• If the retirement capital of the previous pension fund is not sufficient, a purchase into the new pension fund is possible.
• A change of employer provides an opportunity to review the current pension situation.

This is how the funds are transferred to the new pension fund

Employees in Switzerland are insured in a pension fund from an annual income of 22,050 francs (as of 2023). The second pillar account is managed by the employer, who also pays the contributions. Provided that no pension case such as disability has occurred, the accumulated credit is transferred to the pension fund of the new employer when you change employer. Usually, the new pension fund will ask you to transfer your vested benefits when you change employer. But in your own interest, it’s best to be proactive about transfer ring your vested benefits.

Federal law regulates transfer of retirement assets when changing employer

According to the Vested Benefits Act (FZG) the accrued credit must be transferred from the pension fund of the previous employer to the new pension fund in the event of a change of employer within Switzerland.

Transfer of pension fund assets: Procedure

To ensure a smooth process, the pension funds provide forms on which you enter the data of the new pension fund. In this way, the parties involved have the necessary data at hand in any case.

The procedure is then as follows:

Step 1:

The previous employer informs the AHV compensation fund, the pension fund, the accident insurance and the daily sickness benefits insurance about the change of employer.

Step 2:

The new employer handles the re-registration with the insurance companies.

Step 3:

The previous pension fund calculates your termination benefit.

Step 4:

After the calculation, the capital is transferred to the new pension fund.

The payment is shown as a vested benefit on the pension certificate (pension fund statement) of the new pension fund. The pension certificate will therefore continue to form the basis for determining the benefits to which you are entitled.

Secure your financial provision when changing employer

To ensure that you are optimally positioned financially after changing employer, you should pay attention to the following points.

What to look out for when switching pension funds

Nowadays, it is advisable to check the status of the new pension fund before changing jobs – if you have the opportunity to do so. A beneficial employee benefit plan is an essential part of your compensation package. So if you’re considering a job change, it’s important to check not only your salary, but also your pension fund benefits. In doing so, make sure that the job change will at least allow you to maintain your current benefits.

When checking the new pension fund, the following key figures are essential:

• Funding Ratio: The funding ratio serves as a benchmark for evaluating the financial health of the pension fund by comparing the accumulated capital to the liabilities. A coverage ratio of 100 percent means full coverage of these obligations. However, a coverage ratio of less than 100 percent is a cause for concern, as it indicates a possible impending restructuring. The pension fund is therefore financially sound if it has a funding ratio of at least 100 percent.
• Technical interest rate: This interest rate determines the interest rate at which the invested capital can earn interest during the payout period. The pension fund must therefore earn this interest on the actuarial reserve in order to be able to fulfill the promised benefits. The interest rate must therefore not be too high.
• Conversion rate: The retirement pension is calculated by multiplying the pension fund assets by the conversion rate. For the mandatory part, the minimum conversion rate is fixed and is currently 6.8 percent (as of 03/2023). For the non-mandatory part, however, the pension funds can set this rate themselves. And there are definitely differences here.
• Proportion of employer contributions: This is also something to consider when changing employers. Some employers pay two-thirds of the contributions instead of the mandatory 50 percent.
• Extra-mandatory benefits: Here there are differences between the individual pension funds. Some also provide for differences in benefits for over-50s in their regulations.
• Cohabiting partner coverage: The conditions for pension payments to cohabiting partners in the event of death also vary.
• Early retirement: If you are thinking about early retirement, the conditions for this must be clarified. Some pension funds allow you to purchase benefits shortly before retirement.

Is the termination benefit sufficient for the new pension fund?

When you change jobs, the previous pension fund calculates the termination benefit, which is then transferred to the new pension fund. It may turn out that this is too low for the new pension fund. This means that the pension fund cannot meet the defined benefits with the capital. There may also be cases where the withdrawal capital is too high and thus a portion remains.

In these cases, the transition can be ensured as follows:

• Withdrawal capitaltoo low: You should consider making voluntary payments in order to buy into the new pension plan with this capital.
• Withdrawal capital too high: You can open an account with a vested benefits foundation with this excess pension capital. Alternatively, the vested benefits foundations offer securities solutions.

Vested benefits account: New employer not in sight for the time being – park money safely

People who are no longer able to pay into the mandatory pension scheme must transfer their vested benefits credit, by which is meant the accumulated credit with the pension fund, into a vested benefits institution. This may be necessary in situations such as unemployment, maternity leave, extended period of further training, or unpaid leave. If the salary falls below the minimum limit or if the insured person becomes self-employed, an alternative solution must also be found for the BVG credit in this case.

In the event of unemployment, every insured person is compulsorily insured for the risks of death and disability in the BVG supplementary pension fund. The unemployed and the unemployment fund share the premiums.

Inform now: Vested benefits with Everon!

Secure investment in vested benefits account

In the event of unemployment, the BVG assets are transferred to a vested benefits account instead of to a new pension fund Vested benefits account account of the insured person. The maintenance of the insurance coverage is guaranteed, since the account balance can only be withdrawn as cash under fixed conditions and is thus secured.

If the insured person fails to notify his or her new form of investment for the vested benefits credit, it will be transferred to the federal BVG accumulation institution within two years. In the case of a new job, the vested benefits institution transfers the capital to the pension fund of the new employer.

Starting your own business: opportunities, possibilities and obligations

Anyone embarking on the path to self-employment needs not only innovative ideas and courage, but also the appropriate capital to start up. In addition, founders generate little turnover in the initial period and must also pay for their living expenses during this time. After years as an employee, it is just right to be able to make an early withdrawal from the capital saved in the pension fund.

Advance withdrawal for self-employment: conditions

The withdrawal of capital from the pension fund is generally subject to the following conditions:

• Proof of self-employment
• No affiliation to a pension fund
• Compliance with a period of 12 months

Proof of self-employment

Confirmation of self- employment must be obtained from the relevant AHV compensation fund. Corresponding documents must be submitted to this office. The activity must be demonstrably carried out under one’s own name and for one’s own account. Furthermore, the independence must be recognizable and that the work is carried out at one’s own financial risk.

For the OASI Compensation Fund, evidence such as the employment of staff, the purchase of equipment or goods, as well as investments already made such as machinery or vehicles, count in the examination.

Documents such as a business plan, entry in the commercial register or purchase contracts for materials should therefore be submitted to the AHV compensation fund as proof.

No connection to a pension fund

As long as you are subject to the compulsory pension fund as an employee, you are not allowed to withdraw money from the pension fund. This means, for example, that if you set up a corporation (for example, a limited liability company ), you are legally dependent as a managing director. You must then insure yourself with a pension fund, like all employees, starting at the fixed minimum wage.

In principle, it is possible to start as a sole proprietorship, draw the pension capital and convert the company into a corporation at a later date. However, caution is advised here, as according to rulings of the Federal Supreme Court a certain amount of time must have passed. Therefore, to be on the safe side, check with your cantonal tax administration in such a case before converting your sole proprietorship into a corporation.

Compliance with a time limit of 12 months

The early withdrawal of pension fund assets due to the commencement of self-employment must be made within 12 months at the latest. After that, the lump-sum withdrawal is no longer possible. Also note that in the case of married business founders, the spouse must consent to the withdrawal.

Think about rebuilding your personal retirement provision in good time

In order to secure the financial means for retirement as far as possible, the options for early withdrawal are considerably limited under the state pension system. One of the limited options for accessing funds before reaching retirement age is to become self-employed. The rationale behind this is that owning a business can be a long-term investment with the potential for appreciation.

However, entrepreneurship comes with risks. If the business idea does not bring the desired success, the founders not only lose their invested capital, but also the pre-drawn retirement assets from the pension fund are lost. Therefore, it is existential, even as an entrepreneur, to start building up the retirement provision again in time.

Use the instruments of the 3-pillar system for this purpose:

• AHV obligation: every gainfully employed person in Switzerland is subject to AHV obligation. This means that you also pay AHV contributions as a sole proprietor.
• Voluntary insurance with a pension fund: With voluntary contributions to a pension fund, you provide for your old age and save taxes at the same time.
• Private pension provision with Pillar 3a: If you are not a member of a pension fund, you can pay a maximum of 20 percent of your net income into the Pillar 3a account each year. Currently, the maximum amount is just under CHF 35,280 (as of 2023).

New job: Identify pension gaps now and close them optimally

When changing pension funds, it is a good idea to take a look at the current status of retirement assets and, in particular, to identify contribution gaps.

These can arise from various situations:

• Stays abroad
• Child break
• Part-time work with low income
• Unemployment

The pension fund certificate informs you about existing contribution gaps and whether and to what extent you can buy into the pension fund. It also provides information about the value of your retirement assets and the expected pension.

The possibility of buying into the pension fund voluntarily depends on the regulations of the pension fund and the current retirement assets. Purchasing is not possible after reaching the regular retirement age.

With a purchase, you increase the benefits in the event of death and disability as well as the pension amount. The tax deductibility is also advantageous. Important: This means a ban on lump-sum payments or early withdrawals for residential property within the next three years. In addition, all previous advance withdrawals for residential property must have been repaid in order to buy into the pension fund.

Insurance check when changing employer: Are the risks still covered?

The pension fund certificate provides information in particular about your retirement assets and contains forecasts of benefits in old age and in the event of early retirement.

At the same time, the information allows insured persons to check whether the coverages against risks are still adequate.

These are:

• Survivors‘ benefits: in the event of death, your spouse, registered partner or children will receive the amounts indicated in the PF statement. If you live in a cohabiting relationship, you should ask your pension plan whether the benefits upon your death also apply to cohabiting partners and whether a beneficiary declaration is required.
• Disability benefits: In the event of total disability due to illness, you will receive the benefits shown. In the event of accidental disability, the pension fund will only pay supplementary accident insurance benefits.

Daily sickness benefits insurance: The premiums for daily sickness benefits insurance may be financed by the employer or shared between the employer and the employee. In some cases, there is also no collective insurance by the employer. Since daily sickness benefits insurance is not mandatory, you should inquire about premiums and benefits of any new collective insurance.

Reading Time: 3 minutes

As a digital asset manager, we are often faced with the question with our clients of whether an existing securities portfolio should be transferred when switching to us or whether it would be better to sell it and transfer the cash. Of course, this mainly depends on the quality of the respective securities and also whether it is worthwhile in terms of costs for the value of the portfolio. However, many people are not aware that securities can be transferred at all.

This process, known as a securities transfer, can seem daunting, but it is actually a straightforward process that can be completed relatively quickly and easily.

In this article, you’ll learn how securities transfers between banks in Switzerland work, how much they usually cost, and what you should keep in mind.

What is a securities transfer?

A securities transfer is the process of transferring securities from one bank or broker to another. This can involve the transfer of stocks, bonds or other types of financial instruments. During the transfer, the ownership of the securities is updated so that they are in the name of the new owner at the new bank or broker.

Reading tip: Cancel & switch pillar 3a: This is what you should bear in mind

How does a securities transfer work?

The process of a securities transfer usually involves three steps:

1. Initiation: the customer contacts the receiving bank or broker to initiate the transfer process. The customer must provide information about the securities to be transferred, including the name and number of securities, current custodian, and account numbers.
2. Authorization: once the receiving bank or broker receives the transfer request, he/she contacts the current custodian and requests authorization to transfer the securities. The current custodian usually requires a written authorization from the client, which may need to be notarized.
3. Transfer: once approval is received, the receiving bank or broker initiates the transfer of the securities. This may involve sending physical certificates or updating ownership records electronically. However, in today’s world, the latter is more likely to be the case.

How much does a securities transfer cost?

The cost of a securities transfer can depend on a number of factors, including the type of securities being transferred, the size of the transfer, and the fees charged by the banks or brokers involved.

In general, the cost of a securities transfer can range from a few hundred to several thousand Swiss francs. The costs are often charged per position to be transferred, which is why a portfolio with fewer positions is always cheaper than a portfolio with several positions, regardless of the number of securities. The costs are therefore proportional to the number of positions and not to the size of the portfolio, which is why it is generally only worth transferring several positions for larger portfolios.

What should you consider when transferring securities?

If you are considering a securities transfer, there are some important things to keep in mind:

• Timing: Transferring securities can take some time, so it’s important to plan ahead if you need to transfer your securities by a certain date.
• Cost: As mentioned earlier, the cost of transferring securities can vary widely. Make sure you know all the costs involved before you initiate a transfer.
• Risks: Although securities transfers are generally safe, there is always a risk that something will go wrong. Be sure to choose a reputable bank or broker to minimize the risk of problems.

Conclusion

In summary, securities transfers between banks in Switzerland are a common and straightforward process. While there are costs and risks involved, these can be minimized with careful planning and a little diligence.

If you are considering a securities transfer, be sure to do your research and choose a bank or broker that can provide the support and advice you need. And if you are looking for a digital asset manager to help you manage your investment portfolio, we are here for you!

Reading Time: 9 minutes

To take account of demographic change, the pension system will have to be adjusted in the future. These changes mainly concern the financing of pensions. However, it remains a challenge to maintain the current pension level in the 1st and 2nd pillars in Switzerland’s 3-pillar system.

To ensure a secure financial retirement, it is therefore crucial that individuals take personal responsibility and plan accordingly. Voluntary saving in the 3rd pillar has therefore become a cornerstone of personal retirement planning.

Pillar 3a serves as a solution to close pension gaps in the 1st and 2nd pillars. However, the large number of investment options makes the decision a complex one. We have therefore compared the various pillar 3a investments for you in terms of potential returns, risks and fees. The comparison will help you find your personal investment strategy.

The most important facts in brief

• Pillar 3a is the private pension plan in Switzerland and is becoming increasingly important.
• Tax savings are achieved with payments into pillar 3a pension products.
• 3a interest accounts currently offer about 0.40 percent interest (as of 03/2023).
• A comparison of investment products should take into account term, performance and fees.
• With a higher risk, higher returns can be achieved in the long term.
• Experience shows that competent asset managers with an individual investment strategy offer an optimal mix of risk and return.

Pillar 3a comparison: Here’s what you should look out for when making a comparison

Whether savings account, securities savings or fund account: If you are looking for the best investment for you, you first need to know which points to compare. These differ depending on the type of investment.

Savings account

With some providers, opening a pillar 3a savings account is generally only possible if other products are taken out with the bank (such as a private account). In addition, regional banks sometimes only offer 3a savings accounts to customers who live in the bank’s region.

In addition, the following points should be taken into account when making a comparison:

• Interest: In general, a savings account is a safe investment, but the returns are very low. Nevertheless, the comparison is worthwhile, because the interest rates for 3a savings accounts range from about 0.10 to 1 percent.
• Account fees: Normally, no account management fees are charged. However, there are differences among the providers in the other fees. These are incurred, for example, in the event of closure on retirement and can amount to up to 100 francs.
• Fees for provider change: This is usually carried out free of charge. However, some providers charge up to 100 francs.
• Fees for early withdrawal: There are sometimes considerable differences between providers. The reason for the early withdrawal (e.g. due to new self-employment, acquisition of owner-occupied property or moving abroad) plays a major role. The amount of the fees ranges from 0 to about 600 francs. In particular, moving abroad is associated with high fees for some providers and can cost as much as 950 fran cs. Read more about this in the article on the 3a payout.

3a funds or 3a securities solutions

Those who pay attention to returns with their 3rd pillar will invest in shares. After all, this is the result of a long-term comparison. When looking for the optimal investment strategy, it is important to keep in mind that investing in individual stocks is not possible in the pillar 3a. This means: no trading as in a free custody account. Since pension assets must be invested in a diversified manner, only 3a funds or 3a investment strategies can be considered.

With 3a funds, performance and fees are responsible for success. The following details should therefore be compared when making a selection:

• Performance: Successful investments in the stock market require a long-term investment horizon in order to be able to compensate for price fluctuations. The performance of 3a funds in the period 2012 to 2022 was approximately between -0.90 and +4.7 percent annually. The wide range makes it clear that a comparison is worthwhile. It should be noted that the funds with slightly negative performance are exclusively funds with a minimum equity allocation.
• Total Expense Ratio (TER): This key figure reflects all costs of the fund that are incurred outside of the front-end load. The TER of 3a funds ranges from about 0.60 to 1.50 percent annually (as of 03/2023).
• Issue fee and redemption fee: Even if these fees are only incurred once, they have an impact on the total return. Here, fees totaling 0 to 1.5 percent can be expected.
• Custody fees: The provider market has been on the move in recent years. With custody account fees currently at around 0 to 1 percent annually, a comparison is therefore also recommended here.

The pillar 3a account with interest: You can count on this

As already stated in the section above, the interest rates for 3a savings accounts currently average around 0.40 percent (as of 03/2023). Interest rates significantly higher than this tend to be the absolute exception. Investors receive the average value of 0.40 percent, for example, at the Luzerner Kantonalbank or Raiffeisenbank (as of 03/2023).

With an inflation rate of around 2.8 percent as of February 2023, the current interest rate on 3a savings accounts thus represents a real loss in value. The ratio is unlikely to change much in the long term, as falling inflation is likely to result in even lower interest rates. Even with the current rise in interest rates, interest rates on savings accounts adjust only with a time lag.

The advantage of 3a interest accounts is thus limited to the benefit of a low-risk investment. A noteworthy return can therefore only be achieved with a certain degree of risk. Long-term comparisons show that with sufficient diversification and an investment horizon of more than ten years, investments in the stock market have always produced a positive return.

How a pillar 3a investment performs

The differences between the various forms of investment become particularly clear in practical examples. For better orientation, you will therefore see below a comparison of the development of an investment of 10,000 francs in different investment forms and maturities.

Payout after term of ..	Interest account (average interest in the respective terms)	Fund defensive (up to 15 percent shares, example Zürcher Kantonalbank)	High-opportunity fund (up to 45 percent equities, example Zürcher Kantonalbank)
5-year term (2017 to 2022)	10’000	9’827	11’757
10 years maturity (2012 to 2022)	10’513	11’521	15’883
20-year term (2002 to 2022)	12’213	15’101	18’536

The equity component – return for pension provision

The above comparison illustrates in particular the following past results:

• Interest accounts are suitable for keeping funds safe in the short term. If liquidity is needed in the near future, there is no risk of having only a reduced capital available due to price drops.
• From an investment horizon of 10 years, taking into account the inflation rate, there is usually a loss with interest investments.
• The level of the equity component is a key factor in determining possible returns.
• Low proportions of equities and high proportions of fixed-income securities do not protect against price losses in the case of short maturities.

Also with Investment strategies it is helpful to look at the past. This is no guarantee for the future. It does, however, show how successful an asset management company has been in recent years. However, comparison is made more difficult here by the fact that not all providers openly communicate their performance.

Providers, products, risk or taxes: Other points that are important when comparing pillar 3a offerings

As developments in Switzerland’s neighboring countries also show, the pension system is facing further necessary changes. These include an increase in the retirement age. The pension funds also have to face the challenges. The conversion rate essentially determines the amount of the retirement pension. The pension fund balance is multiplied by this rate to calculate the pension. In the meantime, however, many pension funds have been forced to reduce the conversion rate.

Private pension provision is therefore becoming the key to a financially secure retirement. To ensure that the return on investment is right, it is crucial to compare pension products and providers. Below, as further assistance, are basic points to look out for when comparing.

Provider: Bank or insurance company – key differences

For many years, life insurance was considered an essential component of a private pension plan. However, the market has changed seriously and thus the importance of 3a insurance policies has decreased accordingly.

The reasons for this are:

• Insurance policies are currently unable to generate any appreciable returns on the invested capital due to their investment regulations.
• All insurance benefits have to be financed by contributions, which are an additional burden on the return.
• The costs of an insurance policy are less transparent than those of bank products.
• Separate coverage of risks is usually cheaper than a combination of insurance and savings.

Bank products are focused on asset growth. The focus is therefore on how much capital will be available at retirement, and how securely.

Which products in the portfolio fit my personal investment strategy?

Strategies are not necessarily good or bad. Rather, they must fit the personal requirements. The choice of products is therefore something crucial.

The main differences between the products are:

• 3a retirement account as an interest account: It is the simplest solution with a high degree of security. If you are frugal, you will choose this simple form of investment. There are very low returns, but investors at least generate tax savings. Although the assets are not covered by the deposit guarantee, they fall into the second bankruptcy class in the event of bankruptcy (maximum 100,000 francs per insured person). This means investors are served immediately after wages and PF contributions and before all other creditors. 3a savings accounts are a suitable solution, especially for investors with a short-term investment horizon, in order to take advantage of tax benefits.
• 3a funds: Funds offer investors with a longer investment hor izon higher return prospects and tax-free dividends.
• 3a investment strategies: This provides investors with asset management within pillar 3a. The portfolio in an asset management can also be implemented with direct securities on the stock market. Innovative digital asset management already allow an investment from assets of CHF 30,000.
• 3a insurance: The policy combines insurance protection (for example in the event of death) and a savings investment for old age. As already described in the section above, today the separation of insurance coverage and retirement savings is much more efficient and transparent in terms of costs.

Risk and retirement provision

How do sound retirement provision and investment risk go together? The investment options within pillar 3a are also associated with different risks. In principle, the same applies here as is generally the case with all investment strategies: more opportunities for returns also mean increased risk. However, avoiding all risk is not always the best approach. Rather, investment risk must match the personal risk profile. Asset management companies offer tools to help find the right investment strategy.

In principle, however, it can be said: The longer the investment horizon, the lower the investment risk associated with price fluctuations and the better the return. Finally, experience has shown that price slumps are generally offset again for maturities of around ten years or more with appropriate diversification. However, the closer retirement approaches, the more one should switch to low-risk strategies.

Individual asset strategy

3a investment strategies such as those offered by Everon allow for an optimal match of personal wishes and needs. In this context, sustainable investments (ESG), for example, have gained in importance.

Domicile of the pension company

It is well known that the tax rate is largely determined by the cantons. Therefore, foreigners should consider the domicile of the pension company. If they leave Switzerland before retirement, the tax rate of the canton in which the pension company is domiciled will apply.

Pillar 3a in comparison: Are there alternatives?

If you are a trader on the stock market, you will not be able to do much with the investments on the capital market within pillar 3a. However, this does not argue against pillar 3a, but rather for an optimal division of assets and retirement planning.

• Take advantage of tax benefits with pillar 3a: Tax savings are an essential part of retirement planning. These tax advantages, which are missing with free investments, would first have to be earned there. Furthermore, the different marginal tax rates in the different phases of life are optimally exploited. This means that tax advantages are particularly effective in periods of higher income, i.e. during working life. Tax burdens, in turn, are mitigated by a low tax rate when income is lower, as in retirement.
• Take advantage of extended return opportunities with free investments: Of course, there are plenty of desirable goals before retirement. And the capital market always offers innovative investment opportunities. Since the use of Pillar 3a is limited to a maximum annual amount, it is also important to use free capital investments to save capital for later years. This can be for retirement provision or for other purposes.

Interest rate trends for savings accounts – suitable for a long-term investment soon after all?

Even if the interest rate development is currently pointing upwards again: Interest rates on savings accounts continue to be well below the rate of inflation. A look at the past also shows that pure savings accounts have only generated satisfactory returns for short-term or at most medium-term maturities. However, with current economic developments, the real interest rate will remain negative for some time to come. For this reason, capital market investments for long-term asset accumulation belong in every pillar 3a solution.

Reading Time: 5 minutes

Factor investing is the basis for Everon’s investment strategy.  The fundamental premise of this investment approach is to identify specific factors that explain asset returns beyond traditional market risk. These factors, such as Value, Momentum, Size, and Quality, have been widely studied and recognized as drivers of asset performance.

This article analyzes the recent developments in Value, Momentum, Size, and Quality factors using data from the Kenneth R. French Data Library. By doing so, it aims to provide valuable insights regarding the dynamic nature of these factors and their potential impact on portfolio management and risk assessment.

Kenneth R. French is a researcher in the area of factor investing and provides precalculated factor data on his website. He became famous for the publication of the “Fama and French Three Factor Model” together with the Nobel Laureate Eugene Fama in 1992.

The factor data is constructed as long-short portfolios with the intend to extract the pure factor without effects driven by the market. This is the academic approach of factor construction and gives a good indication of the factor itself. However, in practice factors are used slightly differently in portfolio construction.

Value Factor

Value investing involves buying undervalued securities with the expectation that they will appreciate over time. The Value factor has historically been one of the most prominent factors in explaining asset returns, but has lost importance within the last decades. Recently, however, the Value factor has experienced a resurgence of interest, as investors question the sustainability of growth-oriented strategies in the face of changing market conditions.

Using data from the Kenneth R. French Data Library, the Value factor has exhibited a notable shift in recent years. From 2015 to 2019, the Value factor underperformed, but in 2020 and 2021, it experienced a remarkable comeback. This can be attributed to several factors, including the market’s reaction to the COVID-19 pandemic, the subsequent economic recovery, and the reorientation of investor focus towards value-oriented strategies.

This orientation towards value remained strong in 2022, as the insecurity about the impact of the higher interest rate regime on the economy persisted. With the beginning of this year, we see already a shift back from value towards growth again. Even though the factor was on average negative for the last decade, value is still the go-to factor in times of crisis. Therefor it should still find its consideration in an asset managers investment decision.

Momentum Factor

Momentum investing involves taking long positions in assets that have exhibited strong recent performance and short positions in assets that have underperformed. The Momentum factor is based on the notion that assets with strong past performance tend to continue outperforming in the short term. The Momentum factor has been well-documented in academic literature, and it has been a popular strategy among both individual and institutional investors.

The Momentum factor has been relatively consistent over the past decade with a positive premium on average. Despite short-term fluctuations, the Momentum factor has generally maintained its ability to generate excess returns for investors. However, the factor has experienced some periods of underperformance, such as during the market turmoil induced by the COVID-19 pandemic.

Especially when markets exhibit high volatility with fast change of directions, momentum becomes instable. Since mid-2021 to the end of 2022, momentum was a strong factor, but with the tech rally in the first months of 2023, the overall momentum factor weakened again.

Size Factor

The Size factor, also known as the small-cap premium, posits that smaller companies tend to outperform larger companies on a risk-adjusted basis. This factor has been extensively studied and has shown to be a persistent driver of asset returns. However, the Size factor has experienced some fluctuations in recent years, raising questions about its long-term stability.

The Size factor has shown mixed performance over the past decade. While small-cap stocks have generally outperformed large-cap stocks, the premium associated with this factor has diminished in recent years.

Several explanations for this trend include increased competition among investors, better access to information, and improved risk management practices. However, during the recovery in 2020/21, Size was an outperformer compared to other factors. Data suggests that Size is especially attractive during times of economic recovery.

Quality Factor

The Quality factor focuses on companies with strong fundamentals, such as high return on equity, low leverage, and stable earnings growth. Quality investing has gained prominence in recent years, as investors seek to mitigate risk and identify companies with sustainable business models. The Quality factor has been shown to be a valuable addition to multi-factor portfolios, offering diversification benefits and potential for outperformance.

The Quality factor has performed well over the past decade, with a generally stable premium. This suggests that the Quality factor has been relatively resilient, even during periods of market turmoil such as the COVID-19 pandemic.

The strong performance of the Quality factor can be attributed to various factors, including investors’ increasing focus on companies with sustainable business models, greater emphasis on environmental, social, and governance (ESG) factors, and the recognition of quality as a source of long-term value creation.

Implications Investors

The analysis of the Value, Momentum, Size, and Quality factors provides valuable insights for asset managers and investors seeking to capitalize on factor risk premia. The following points summarize the key takeaways from this study:

• Value: Despite a period of underperformance, the Value factor has experienced a resurgence in recent years. Asset managers should remain vigilant and adaptive to changing market conditions to capitalize on the potential return premiums associated with this factor.
• Momentum: The Momentum factor has generally been consistent in generating excess returns, but it is not immune to short-term fluctuations and periods of underperformance. Investors should understand the potential risks associated with Momentum investing and incorporate appropriate risk management strategies.
• Size: The Size factor has shown mixed performance in recent years, with the small-cap premium diminishing over time. Asset managers should remain cautious in their reliance on the Size factor and consider potential changes in its efficacy when constructing portfolios.
• Quality: The Quality factor has demonstrated strong and stable performance, suggesting its resilience and potential for long-term value creation. Investors should consider incorporating the Quality factor into their investment strategies to enhance portfolio diversification and capitalize on the benefits of quality investing.

Changes in factors over time:

We have seen that factors evolve differently over time and perform differently during specific market environments. Correlations between the considered factors suggest, that it is beneficial to combine them as some exhibit negative correlations to each other. 

By doing so, the outperformance of one factor can make up the underperformance of another factor. If we then continue to apply weightings to the factors according to their short-term momentum, we can even minimize the impact of the underperformance by some factors in order to achieve an overall superior result.

	Market	Size	Value	Quality	Momentum
Market	1	0.347	0.082	-0.568	-0.326
Size	0.347	1	0.272	-0.222	-0.363
Value	0.082	0.272	1	0.183	-0.181
Quality	-0.568	-0.222	0.183	1	0.111
Momentum	-0.326	-0.363	-0.181	0.111	1

Conclusion

The development of factor risk premia, particularly for the Value, Momentum, Size, and Quality factors, has significant implications for asset managers and investors. By closely monitoring the evolving relationships between these factors and adapting the investment strategy accordingly, asset managers can better manage portfolio risk and potentially improve investment performance.

As markets continue to evolve, understanding the dynamics of factor risk premia will remain crucial for successful portfolio management and risk assessment in the field of factor investing and beyond.

Reading Time: 14 minutes

All about occupational benefits in Switzerland’s 3-pillar system

People who live and work in Switzerland pay part of their income into the financial instruments of the first and second pillars. In addition, the Swiss pension system allows people to make voluntary retirement contributions with partial tax incentives.

As the second pillar, the occupational pension plan (BVG) is an important pillar of the Swiss 3-pillar system. It complements the mandatory AHV insurance. But how far do the benefits go and to what extent do they cover actual needs in old age?

In this guide, you will find answers to questions about the BVG contribution obligation, the possible amount of the old-age pension and the additional safeguards. This will enable you to classify the options in concrete terms and pursue your personal pension strategy in a targeted manner.

The most important facts in brief

• BVG stands for «Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans».
• It represents the second pillar within Switzerland’s 3-pillar system.
• The BVG pension supplements the retirement pensions of the first pillar and provides additional coverage in case of disability and death.
• Every employer maintains a pension fund or is affiliated with one.
• Employees are compulsorily insured from a minimum income.
• Employers contribute at least 50 percent of the monthly contributions.
• The expected retirement pensions from the first and second pillars are not sufficient to secure the standard of living in old age.

What is BVG? The legal basis

In colloquial language, the abbreviation BVG is often used in Switzerland to refer to occupational pension plans, i.e. pension funds. BVG stands for «Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans». This law sets out the framework for occupational pension provision. The federal law has been in force since January 1, 1985.

Pension funds existed in Switzerland many decades earlier. As early as 1925, about 262’000 members were insured in 1’200 pension funds. However, membership was reserved for only a few citizens, such as civil servants or bank employees.

BVG: 2nd pillar of the 3-pillar system

The Swiss pension system is based on three pillars, which explains the classification of the BVG:

• First pillar: state pension (AHV)
• Second pillar: occupational pension plan (BVG)
• Third pillar: private pension provision (see tips on pillars 3a and 3b)

The second pillar (BVG) helps insured persons and their dependents with benefits in retirement, disability and death.

Pillar 2a and Pillar 2b

The second pillar of the Swiss pension system is divided into a compulsory and a non-compulsory part. The insurable income in the BVG is limited in its amount – the obligatory part. For the part of the income above this, the extra-mandatory part, private provision can be made with the pension instruments of pillar 2b.

The importance of the BVG in the context of pension planning

The mandatory pension covers various risks.

These include:

• Protection in old age (BVG pension)
• Accidents
• Disability
• Death
• Daily sickness benefit insurance to ensure continued payment of wages in the event of illness

Vested benefits institutions are also components of the BVG.

With regard to coverage in old age, the goal of the BVG is that the pension income together with the AHV pension should cover about 60 percent of the last income.

Employers take over organization and share in contributions

As with AHV contributions, employers contribute at least 50 percent to occupational pension plans (BVG). Employers are also responsible for organizing and paying the contributions. As an employee, you therefore receive coverage through a pension fund and do not have to worry about the details.

BVG mandatory ensures minimum benefits

The federal law (BVG) contains regulations that pension funds must comply with. This means that as an insured person, you are guaranteed minimum benefits by law.

Every employer has a pension fund

To ensure that every employee has the option of occupational benefits, all employers must maintain appropriate pension funds or join a joint scheme. Even if the employer fails to do so, employees are guaranteed to be insured with the Stiftung Auffangeinrichtung BVG. This acts as a safety net for the second pillar on behalf of the Confederation. Vested benefits that cannot be transferred to any other institution are also paid there.

Safeguards for the vicissitudes of life guaranteed by law

Since the BVG stipulates the safeguards for survivors in the event of disability or death, insured persons enjoy uniformly prescribed minimum benefits. For example, insured persons with a degree of disability of 70 percent or more receive the full pension and those between 40 and 69 percent receive a partial pension.

Old-age pension only covers part of income

If you take a look at the exact regulations for the old-age pension, you will quickly recognize the gaps within the coverage provided by the BVG.

For this purpose, it is important to be informed about the following restrictions:

• Compulsory insurance only from BVG minimum annual salary: employees are subject to compulsory insurance from an annual salary of at least 22’050 francs (as of 2023). This means that there is no insurance for lower incomes and therefore no pension entitlement is built up.
• Insurance limited to maximum amount: Up to an annual salary of 88,200 francs is provided for retirement. For incomes above these income limits, private pension provision is therefore existential.
• Self-employed persons are not compulsorily insured.
• Employees with fixed-term employment contracts are not insured: This applies to employment contracts of up to three months.
• Family members on one’s own farm are not insured.
• People with reduced earning capacity (at least 70 percent) are not insured.

The limitations on coverage make it clear that in the course of a person’s working life, almost everyone is not insured for more or less large amounts of income. This means that there will be even more gaps in coverage in old age if no private provision is made for this.

The BVG obligation: From when and who is obliged to pay contributions?

According to the BVG, employees are required to pay insurance if they are already insured in the first pillar (AHV) and earn at least CHF 22’050 (as of 2023).

Compulsory insurance begins as soon as an employment relationship is entered into. The minimum age is 17 years of age. Until the age of 24, the contributions only cover the risks of disability and death. Only then are the contributions used to save for the old-age pension.

Important: As mentioned in the previous section, some groups of people are not compulsorily insured (self-employed persons, temporary employment contracts, family members in the agricultural business, disabled persons).

Voluntary insurance via the second pillar (BVG)

Those who are not compulsorily insured under the BVG may be able to take out voluntary insurance.

• Part-time work: If you earn below the BVG minimum wage of 22’050 Swiss francs (as of 2023), it is possible to be insured as a voluntarily insured person with the Stiftung Auffangeinrichtung BVG.
• Self-employed persons: As a self-employed person, you have the option of taking out voluntary insurance with your professional association, with the pension scheme of your employees or via the Stiftung Auffangeinrichtung BVG.

Calculation and payment of contributions

The employer, who also pays the BVG contributions, takes care of the connection to the pension fund. According to the BVG, at least half of the contributions must be paid by the employer. Employees have their share deducted directly from their monthly salary.

The BVG minimum contribution is regulated in ascending order according to age groups in the BVG.

Age	BVG contribution
25 – 34	7 percent of insured salary
35 – 44	10 percent of insured salary
45 – 54	15 percent of insured salary
55 – 65	18 percent of insured salary

Employers may make higher contributions than required by law to retain their employees.

Coordination deduction and insured salary

According to the framework law BVG, the benefits that insured persons receive from the first and second pillar are coordinated. Therefore, a so-called coordination deduction is made in the income to arrive at the insured salary. This currently amounts to 25’725 francs (as of 2023) and corresponds in principle to 87.50 percent of the highest AHV full pension.

For example, if an employee has a gross annual salary of 79,000 francs, this results in an insured salary of 53’275 francs (79’000 – 25’725). The contributions are again calculated from the insured salary. It is therefore important for your pension planning to note that not the entire salary is insured.

Minimum insured salary

The coordination payment would lead to a situation where low incomes would no longer be insured. To avoid this, the legislator has defined a minimum insured salary, which in principle corresponds to 150 percent of the maximum AHV full pension (CHF 2’450, as of 2023). The minimum insured annual salary is therefore CHF 3’675 (as of 2023).

Upper BVG limit and maximum insured salary

The upper limit of the gross salary to be insured under the BVG is three times the maximum AHV full pension (29’400 francs, as of 2023). This results in a BVG limit of 88’200 francsin 2023. In this context, pay attention to the benefits of your pension fund, as some pension funds provide higher benefits than the BVG stipulates.

The maximum insured salary is calculated from the upper BVG limit and the coordination deduction. This is an essential limit for the personal pension plan. For 2023, this means that a maximum of CHF 62’475 of the salary is insured.

Save taxes as a self-employed person with a voluntary pension plan

If you belong to a pension fund as a self-employed person, you can deduct BVG contributions of up to 25 percent of your annual income subject to AHV from your taxable income, depending on your pension plan.

Vested benefits in the event of an interruption of the employment relationship

By nature, insured persons do not remain members of the same pension fund throughout their working lives. In the event of a change of employer, the retirement assets are taken over by the new pension fund. However, even if a new employment relationship does not follow seamlessly, the pension fund assets paid in may not be withdrawn from the pension circuit. This is the case, for example, in the event of maternity or unemployment. The previous pension fund then transfers the termination benefit to a catch-up institution after 24 months at the latest (after six months at the earliest). Providers include various banks, wealth management companies or insurance companies.

The vested benefits institution holds the capital in a low-risk vested benefits account. Since it hardly generates any return there, you should, if necessary, examine alternative securities solutions, such as those offered by digital asset management offered by digital asset management companies.

The BVG pension: ordinary withdrawal

The ordinary withdrawal of the BVG pension is scheduled as soon as the retirement age is reached.

You have the following options for drawing the retirement assets:

• monthly pension upon reaching retirement age
• Withdrawal of the balance as a lump sum
• Withdrawal of a quarter of the balance as a lump sum and the rest as a pension

Please note that the options for lump-sum withdrawals are regulated differently in the pension funds. It is therefore advisable to look into this issue about ten years before you retire.

BVG pension and AHV pension together should cover about 60 percent of the last net income. However, this frequently found generalization is not accurate in many cases. Note that due to the limits described in the previous sections, it can be assumed that the complete income is rarely insured during the working life.

Early Retirement Option

With many pension funds, it is possible to withdraw assets as early as the age of 58. Early retirees must expect deductions of between three and five percent per year of early withdrawal.

Personal circumstances answer the question of pension or lump sum

Since the decision cannot be reversed, it must be made very carefully and, in the case of married couples, jointly.

To help, the following table shows a comparison of the main differences.

	Pension	Capital
Income	Regular income is secured for life.	The income from the assets develops depending on the capital market and the investment strategy.
Flexibility	The withdrawal of the fixed pension is unchangeable.	Free decision on investment and use of the capital. The strategy can be adjusted if life circumstances change.
Survivors’ pension	Widow’s or widower’s pension normally 60 percent of the retirement pension drawn. Cohabiting partners and adult children are not included in the statutory provision.	Existing assets can be disposed of by will within the framework of the statutory provisions.
Taxation	The pension is fully taxable.	One-time capital benefit tax at a reduced tax rate. The existing capital is taxed as assets, the income from it as income.

With regard to individual circumstances, for example, the state of health is a criterion for deciding between pension and capital. Those who expect an above-average life expectancy will opt for annuities.

Spouses also often prefer to opt for a pension in order to provide for their spouse. People without a life partner are more likely to opt to bequeath part of the pension fund capital to descendants.

Risk tolerance and experience with investments also influence the decision for or against a lump-sum withdrawal. If you have sufficient other sources of income , you can invest the capital profitably, for example if you have experience with securities investments.

When making a lump-sum withdrawal, pay particular attention to the following points:

• Pension funds have deadlines by which the lump-sum withdrawal must be declared.
• Married couples and registered partnerships: written consent of the partner is required.
• In the case of purchases into the pension fund, the resulting benefits cannot be made before three years after the last purchase.
• Use the professional support of an asset management company.

Pension or lump sum: combination often the best choice

A combination of annuity and lump-sum withdrawal can often be a suitable option. If the accumulated retirement assets are high, it may make sense to split them into an annuity portion and a lump-sum payment. The pension portion can then be used to cover current expenses, while the lump-sum payment can be used for additional needs such as travel or major purchases. In this way, you can benefit from the advantages of both options and have both regular income and greater financial flexibility.

The BVG pension: early withdrawal

Under clearly defined conditions, the BVG also permits an advance withdrawal of the saved capital before retirement age.

• Construction or purchase of residential property: Provided the home is owner-occupied, the pension fund assets can be withdrawn early for the construction or purchase of residential property. Mortgage loans can also be repaid with the capital.
• Self-employment as main occupation: In the year in which you start working as a self-employed person, you can withdraw your pension fund assets early. However, this is always in full, i.e. not as a partial withdrawal.
• Leaving Switzerland for good: Emigrants can make advance withdrawals from the mandatory occupational pension plan if they emigrate to a non-EU/EFTA country . In the case of EU/EFTA countries , the advance withdrawal does not work, as here the mandatory insurance for old age, disability and survivors’ benefits takes effect and this, according to the law, prevents the advance withdrawal.

Valuable safeguards of the BVG

The main insurance benefits of the BVG include disability and survivors’ benefits.

Disability benefits

A disability pension is paid from a degree of disability of 40 percent. The amount is graduated according to the degree of disability and starts at 25 percent of the full pension at 40 percent disability. The full disability pension amounting to 6.8 percent of the projected retirement assets is paid for a degree of disability of 70 percent or more.

Survivors’ pension

The BVG provides for a survivor’s pension if the deceased leaves dependent children. Likewise, the surviving spouse receives a widow’s or widower’s pension if the deceased is 45 or older and the couple were married for at least five years. In the event of remarriage, there is no further entitlement to a survivor’s pension. If the requirements are not met, the surviving spouse is entitled to a lump-sum settlement of three annual pensions.

Since January 1, 2007, surviving registered partners have the same entitlements under the BVG as spouses. The prerequisite is that the partnership existed for at least five years before the death and that joint children are to be maintained. However, it is important to check whether the respective pension fund has already included these benefits in its catalog.

The amount of the survivor’s pension is 60 percent of the retirement pension drawn (or the full disability pension, if applicable).

Divorced spouses may also be entitled to a survivor’s pension. Prerequisites: The marriage lasted at least ten years and a pension or lump-sum settlement was awarded in the divorce decree.

In addition to the surviving spouse, also Children of the deceased are also entitled to a BVG pension. This is paid to the children until they reach the age of 18 and amounts to 20 percent of the old-age pension. Provided the child is still in education or is at least 70 percent disabled, the orphan’s pension can be drawn until the age of 25.

The BVG pension in practice: examples

The amount of the BVG pension depends on the retirement assets you have built up with your pension fund at retirement. To determine the pension, the retirement assets are multiplied by a fixed conversion rate. For example, if you have retirement assets of 250’000 Swiss francs, this results in an annual BVG pension of 17’000 Swiss francs or 1’416 a month at a conversion rate of 6.8 percent (as of 2023).

The retirement assets are calculated from the following items:

• Retirement credits (contributions from employee and employer)
• Vested benefits
• Deposits (purchase sums)
• Surpluses and interest

Pension funds must pay interest on the credits and benefits paid in at a minimum interest rate. This has steadily declined in recent years due to the persistent low interest rates and has been as low as 1 percent since 2017 (as of 2023). Until 2002, it had been 4 percent since 1985. This development makes it clear that a reliable projection of the old-age pension is not possible. Added to this are the changed mandatory insurance sums as well as the conversion rate, the reduction of which from 6.8 percent to 6 percent is already being discussed by Parliament .

In order to provide an initial orientation despite the uncertain parameters in the future, the following are therefore some rough calculation examples, which are primarily intended to illustrate the differences in the various case situations. As part of your personal pension planning, make sure to update your individual projections on an ongoing basis and adjust them to reflect changes in the underlying conditions.

Please note in the examples that the calculations are based on assumptions from the past as well as in the future, which may not apply in your personal case.

Example 1:

• 30-year-old
• Career entry at age 25
• Annual salary: CHF 80’000 (average salary until age 65)
• insured salary: CHF 54’275
• Contribution (as a 30-year-old today 7 percent): CHF 316
• of which share as employee: CHF 158
• Pension after retirement at 65: CHF 1’440

Example 2:

• 45-year-old
• Career entry 25
• Annual salary: CHF 110’000 (average salary until age 65)
• insured salary: CHF 62’475
• Contribution (as a 49-year-old today 15 percent): CHF 780
• of which share as employee: CHF 390
• Pension after retirement: CHF 1’690

In addition to the BVG pension, a pensioner’s child’s pension may be payable if the insured person dies (including early retirees). It is paid in the amount of 20 percent of the retirement pension, but not more than for children up to the age of 18. If the child is still in education, a maximum age of 25 applies.

Even though the examples cannot be used to derive a personal projection due to the constantly changing parameters, the differences in the income brackets become clear. In the examples, a gross salary that is 30’000 francs higher only accrues a further pension entitlement of around 3’000 francs or 250 per month.

The importance of the BVG within personal retirement planning

The occupational pension plan (BVG) is an important component of personal retirement planning in Switzerland. It forms the second pillar of the Swiss 3-pillar system and supplements the benefits of the first pillar (AHV). Disability and survivors’ p ensions are an essential financial aid in the relevant life situations.

However, you should not rely solely on the BVG to provide financial security in old age. After all, even if you have paid into it throughout your entire working life, in the best case scenario it will only provide you with around 60 percent of your former salary. As the sample calculations show, the coverage gap is particularly high for higher incomes.

It is therefore important to make use of the entire 3-pillar system and, in particular, to take advantage of allowances. In this way you benefit from Tax advantages and ensure that you are financially secure in old age and can maintain your accustomed standard of living.

Conclusion BVG: Valuable coverage for special life situations – not sufficient financial retirement provision

The occupational pension plan according to the BVG is an essential pillar of the Swiss social security system. The second pillar offers employees in Switzerland good financial security in old age and in the event of disability or death.

Pension funds are reputable institutions and they are financially sound. Employees have the option of increasing their pension benefits by making additional contributions and thus increasing their pension entitlements.

However, the pensions resulting from occupational pension plans, together with the state AHV pension, generally only secure basic needs in old age. However, the standard of living in Switzerland remains high by international standards. In this context, it is striking that despite the positive framework conditions in Switzerland, the Old-age poverty is above average in a European comparison. It is therefore important to take additional private pension measures in order to be able to maintain the accustomed standard of living in old age.

Reading Time: 10 minutes

Switzerland is a country known for its high quality of life. As a Swiss citizen, it is therefore a desirable goal to enjoy old age in Switzerland. In this context, when you plan your financial future, the specific retirement age should not be missing from your considerations. There are many factors that influence the date of retirement in addition to the official regulations.

What retirement age can I currently assume and will the retirement date possibly change? Are there ways to plan for retirement before the official retirement age in Switzerland, and what do I need to consider?

Only those who know the rules regarding retirement age in Switzerland can optimally prepare for a comfortable and secure future. You will find the essential information in this article.

The most important facts in brief

• The long period until retirement offers a wide range of pension options.
• Those who make optimal use of the long investment horizon until retirement age have an easier time of it.
• The retirement age is currently rising in all countries.
• Due to demographic developments and higher life expectancy, the financing of state pensions in Switzerland and internationally is reaching its limits.
• Private pension provision is becoming increasingly important and is the instrument to help determine the personal retirement age.

The retirement age in Switzerland: today and in the future

Currently, there is a women’s pension age and a men’s pension age in Switzerland. This means that the following ordinary retirement ages apply for drawing an AHV pension:

• for men 65 years
• for women 64 years

History of the AHV: Controversial discussions about retirement age in Switzerland

The introduction of the AHV is undoubtedly a milestone within Switzerland’s social policy. It was introduced in 1948. The retirement age for men was set at 65. A retirement age of 65 was also set for women at that time.

Since then, there have been the following major changes during the further development of the AHV:

• 1957: After the pension had been increased several times since the AHV was founded, the women’s pension age was lowered by two years to 63. This revision followed the conviction that physical strength would decline faster in women than in men.
• 1964: Another AHV revision lowered the regular retirement age for women – this time to 62. At the same time, supplementary pensions for wives and children’s pensions were introduced, financed by a contribution from the state.
• 1972: Another milestone in Switzerland’s old-age provision was the introduction of the 3-pillar principle in this year. According to the constitution, the AHV pension is to ensure subsistence and is supplemented by occupational and private pensions.
• 1985: According to the constitution, pensions from the pension fund should ensure the «accustomed standard of living».
• 1997: With the introduction of income splitting, education credits and care credits as well as the widow’s pension, the retirement age for women was simultaneously raised again to 64 in several partial steps.

In the years that followed (2004, 2010 and 2017), there were repeated reforms sought in Parliament to raise the ordinary women’s pension age to 65. However, all reforms were rejected by the time of the people’s decision at the latest.

AHV 21 reform: Uniform retirement age for men and women

The people and the cantons approved the AHV 21 reform on September 25, 2022. On December 9, 2022, the Federal Council set the effective date for this at January 1, 2024.

Key points are:

The retirement age for women and men will be standardized (65 years).
The continued financing of the AHV is secured until 2030.

The ordinary retirement age will in future be referred to as the reference age. This reflects the fact that flexible retirement between the ages of 63 and 70 is possible for both men and women.

Transitional arrangement

According to the reform, the reference age for women will be raised in several steps of three months per year, starting one year after the reform comes into force. If the reform comes into force in 2024, as currently planned, this means that women born in 1960 will not yet be affected by the new reference age. The 1961 cohort, for example, will then have a reference age of 64 years and three months. For the 1964 cohort, the reform will then be finally implemented in 2028 and the women of this cohort will have a reference age of 65.

Retirement age in Switzerland in international comparison

Demographic change and increased life expectancy are presenting many countries with enormous challenges. Even though trade unions and social welfare associations are campaigning for the lowest possible retirement ages, the question of financial viability is increasingly being raised. One consequence of this is often an increase in the statutory retirement age. With an age of 65, Switzerland is in the lower midfield in Europe.

For comparison, here are some countries with the respective statutory retirement age for drawing the full old-age pension:

• Slovakia: 64 years
• Austria: 65 years (currently transitional regulation, finally implemented for birth cohort 1968)
• Germany: 67 years (currently transitional regulation, finally implemented for birth cohort 1964)
• France: 67 years
• Italy: 67 years
• Denmark: 69 (currently transitional regulation, finally implemented for birth cohort 1967, thereafter increase according to the development of life expectancy).

A look beyond Switzerland quickly shows that an increase in the retirement age seems unavoidable. In Denmark, the retirement age has even been linked to the development of life expectancy. Experts therefore assume that it will already be at least 70 years in the next few years.

A reference age of 65 in Switzerland can therefore currently be seen as an expression of economic stability. However, Switzerland will not be able to ignore developments in the long term in order to continue financing the AHV system. This once again highlights the growing importance of occupational and private pension provision.

Early retirement: the options for early retirement

The AHV pension can be drawn one or two years earlier. For each year by which the pension is drawn early, you must accept a reduction of 6.8 percent. Important: The reduction is permanent. It therefore applies to the entire pension period. No children’s pensions are paid during the period of the early withdrawal.

An application must be submitted for the early withdrawal. The deadline for this is the end of the month in which the insured reaches the age of majority.

Usually no early withdrawal from the second pillar

Normally, the BVG pension, i.e. the pension from the second pillar, cannot be withdrawn early. However, some pension schemes allow early retirement from the age of 58. If you are interested, it is best to contact your pension fund at least one year in advance. Pillar 2b capital can, however, be withdrawn at any time.

Early withdrawal from the third pillar

You can withdraw capital from the third pillar at the earliest five years before the AHV retirement age. Please note that only one payment is possible – i.e. one full payment per pension account.

Pension deferral: When retirement is not yet an incentive

Early retirement is not attractive for everyone. So if you would like to continue working, you can postpone payment of your AHV pension for a maximum of five years. Working alongside the AHV pension is also possible.

If you postpone your AHV pension, you will receive a pension supplement later. This is graded according to the duration of the deferral and amounts to between 5.2 and 31.5 percent.

Usually no deferral of the pension from the second pillar

The pension from the occupational pension plan is normally paid from the normal retirement age. However, individual pension plans provide for deferral until the age of 70 in their regulations.

Deferral of benefits from the third pillar

If you can prove that you are working despite reaching the statutory retirement age, you can also postpone drawing from the third pillar for up to five years after the statutory retirement age. It should also be noted here that only one payment, i.e. the full capital, is possible.

Early retirement and pension deferral from 1.1.2024 (AHV 21 reform)

The standardization of the retirement age (in future «reference age») for men and women to 65 years will result in flexible retirement between 63 and 70 years. Women in the transitional years can already choose to retire at age 62.

At the same time, partial retirement and partial pension deferral will be introduced.

Instead of fixed reductions for early withdrawal and supplements for deferral, these will in future be based on average life expectancy. There will also be lower reductions for lower annual incomes (below CHF 57,360). The changes to the reductions and surcharges are planned for 2027 at the earliest. The rates should be set by the Federal Council shortly before they are introduced.

The Swiss pension scheme: Secure your financial future with the 3-pillar principle

The developments of the retirement age and the respective backgrounds clearly show that there will continue to be a shift within the three pillars of retirement provision in Switzerland. For future financial planning, it is therefore important to know and take advantage of the options within the 3-pillar principle.

First pillar: State pension plan

This consists primarily of old-age insurance and survivors’ insurance, known as AHV for short. In addition, there is disability insurance, unemployment insurance, maternity insurance and compensation for loss of income during military service. The first pillar represents a state-organized means of subsistence – but nothing more. Depending on the number of years of contributions as well as the contributions paid in, the maximum pension (as of 2023) is 2,450 francs per month for one person. For married couples, it is currently 3,675 francs.

The insurance covers all people who live or work in Switzerland, with or without gainful employment. Contributions are paid by employed persons and the amount depends on income.

Second pillar: occupational pension plan

The occupational pension plan is funded. It is divided into a

• mandatory (2a) and
• non-compulsory (2b) part

The compulsory part is the old-age provision (BVG pension). This part also includes daily sickness benefits insurance and accident insurance. It also includes vested benefits institutions to take over entitlements if the benefit provider changes.

Benefit providers of the second pillar are public as well as private pension funds. From a minimum annual BVG salary, employees are required to pay insurance and must pay contributions, half of which are paid by the employer. Self-employed persons can pay in voluntarily.

The insurance obligation only applies to a limited part of the income. The part above this is the extra-mandatory part. Voluntary provision can be made for this so-called precaution 2b. Tax advantages can be generated here, since both contributions and saved pension capital are tax-free.

The occupational pension plan can cover about 20 percent of the pension requirements. With the benefits from the first and second pillars, around 60 to 70 percent of the earned income can thus be covered, provided that the extra-mandatory insurances are also used.

Reading tips:

• Vested benefits for occupational pensions: tips and FAQ
• Vested benefits at Everon: Find out now

Third pillar: Private pension provision

As fewer and fewer working people will have to pay for more and more pensioners in the future, private pension provision will become increasingly important. Therefore, part of planning a financially carefree life in old age is the use of the third pillar.

The third pillar is divided into two areas:

• Pillar 3a (tied pension provision, exempt from tax within certain limits, in exceptional cases, such as the purchase of a home, an advance withdrawal is possible)
• Pillar 3b (free pension provision, no immediate tax advantages, fewer restrictions, flexible and needs-based coverage, flexible structuring of payouts)

Thanks to a wide range of financial products, the third pillar allows pension provision to be optimally adapted to individual needs. The identifiable gaps in coverage that are not covered by the first and second pillars of pension provision can be optimally closed with the third pillar. This is particularly relevant against the backdrop of the changing retirement age.

Thinking about tomorrow today: The advantages of early financial provisioning.

The earlier you start making financial provisions, the easier and more profitable it will be to achieve your goals.

There are several reasons for this:

• If you start making financial provision in good time, you can determine your retirement in a more self-determined manner. This gives you more freedom and scope for development.
• Early financial provision can offset the effects of lower pension and social security benefits.
• Investing and saving early creates more wealth over time, and the compound interest effect is particularly powerful.
• A solid long-term financial retirement plan helps realize financial goals and aspirations, such as buying a home or traveling the world.
• Early financial provision creates the financial means to cope with unexpected expenses and emergencies, such as job loss, major repairs or illness.
• Timely wealth accumulation allows for broad diversification and reduces investment risk.
• A long investment horizon provides access to investment opportunities that may not be available at a later date.

Frequently asked questions (FAQ)

What needs to be arranged for retirement and when?

In order to receive an AHV pension, you must inform the compensation office in writing of your entitlement. The compensation office where you have paid AHV contributions in previous years is responsible for processing your claim. If you are unsure, your employer will inform you about the compensation office.

It is important that you submit your application no later than three months before you reach the statutory retirement age. This will enable the compensation office to obtain all the necessary information to calculate your pension.

To receive a BVG pension from the second pillar, you should contact your pension fund a few months before the regular retirement age. They will provide you with information on the exact amount of the pension and guide you through the necessary steps to receive it.

For benefits from the third pillar, you should also contact your private pension fund a few months in advance to find out about the modalities and the amount of your saved capital.

How is the amount of the pension calculated?

The AHV pension is determined by the years of contributions as well as the relevant average income. Additional education credits are granted for children and care credits are available for caring for relatives in need of care. Pensions are limited in terms of maximum pensions and minimum pensions. Insured persons can obtain an estimate of their OASI pension.

The BVG pension from the second pillar is calculated on the basis of the contributions paid in and the pension fund regulations. Normally, a one-time payment of a quarter of the capital is also possible upon retirement. The annuitization of the capital is based on a conversion rate, the minimum level of which is currently set by law at 6.8 percent. For a capital of 250,000 francs, for example, this means a pension of 17,000 francs a year, or around 1,416 francs a month, at a conversion rate of 6.8 percent.

The retirement assets from the third pillar are generally drawn as a one-time lump-sum payment.

Why is there old-age poverty in a wealthy country like Switzerland?

While the standard of living in Switzerland remains very high, the poverty rate in old age is increasing at a striking rate. This can be explained primarily by the fact that Swiss people are more dependent on assets in old age. This highlights the importance of using private pension options. According to statistics from the SFSO, the poverty rate for retirees who draw their main income from the first pillar is over 20 percent. However, if the main income comes from the second pillar, the rate already drops by more than half.

Reading Time: 10 minutes

The topic of inheritance is complex and many are overwhelmed when they suddenly inherit higher sums of money or other assets. There are legal regulations that are supposed to regulate the transition. Nevertheless, there are also personal decisions to be made. How should the inheritance be managed and how can it be used or invested wisely? What should be considered when it comes to inheritance tax or debts?

As a testator, this guide will give you an overview of how you can ensure your own wishes. If you have inherited in Switzerland, you are also already prepared for the first steps.

The most important facts in brief

• Under Swiss inheritance law, the right to inheritance is based on the degree of relationship.
• Testators can make provisions that deviate from the law of succession in a will.
• Close relatives are entitled to compulsory portions, which may not be undercut even by their own dispositions.
• Timely planning of the estate benefits testators and heirs.
• Competent asset management helps to maintain and increase the inherited assets.

Parentel system: Swiss inheritance law regulates who inherits and how much

In Switzerland, inheritance law is determined by the parentetel system. If the deceased has not written an official will or inheritance contract, the degree of relationship determines who inherits and how much. With a will or inheritance contract, you can therefore document your will during your lifetime and avoid disputes among heirs.

• Will: You draw up your will yourself and can also amend or revoke it at any time. You are free to formulate your instructions and regulations as long as you comply with the legal limits and, in particular, take into account the compulsory portions. Despite the will, the statutory inheritance law continues to apply due to the compulsory portions.
• Inheritance contract: You and one or more of your heirs can jointly conclude an inheritance contract, which allows you to make decisions outside the legal framework and thus to make individual arrangements. These can only be changed or reversed if all parties agree.

Legal succession according to the parentetel system

The parentetel system determines who is entitled to receive an inheritance and the order in which they receive it. This system is ordered by degree of kinship. If there are no heirs in a particular parentel, the next closest parentel comes into question. Relatives from the third parentel are the last to be entitled to inherit.

• First parentel: This includes direct descendants such as children, grandchildren or great-grandchildren. Children inherit in equal shares. In the case of deceased children, their descendants are entitled to inherit instead.
• Second parentel: These are in particular parents. If they are deceased, their descendants inherit, i.e. siblings and, if applicable, nieces and nephews.
• Third parentel: This is the trunk of the grandparents. Often the grandparents are already deceased and uncles, aunts and possibly cousins take their place. This is provided that there are no heirs within the first two parenteles.

Inheritance entitlement of the spouse

Spouses are always entitled to inheritance by law. The amount of the inheritance claim depends on the other possible legal heirs. In addition, the amount is also influenced by the property law chosen by the spouses.

The surviving spouse is entitled to:

• If there are heirs of the first parentel: 50 percent of the inheritance
• If there are only heirs of the second parentetel: 75 percent of the inheritance.

Determination of the estate

Before the inheritance is divided, the assets are divided according to matrimonial property law. If the spouses have not made any agreements in a marriage contract, the so-called ordinary matrimonial property regime applies. This means that the statutory regulations apply. A distinction is made between four different asset classes:

• The assets brought into the marriage by the wife and gifts (own property).
• The assets brought into the marriage by the husband (personal property)
• Assets acquired by the wife during the matrimonial property regime (acquired property)
• Assets acquired by the husband during the matrimonial property regime (acquisitions).

After this division, the surviving spouse is entitled to the following shares:

• His/her own personal property
• 50 percent of his or her acquisitions
• 50 percent of the inheritance of his deceased spouse

The estate includes the remaining assets.

Spouses have the option of making agreements in a marriage contract that deviate from the legal requirements. For example, community of property or separation of property can be agreed. It can also be agreed in the prenuptial agreement that, for example, the surviving spouse is entitled to all the assets of both spouses in the event of the death of one spouse. However, the undercutting of compulsory shares is only possible in very few exceptional cases. One reason would be a serious crime committed by the heir against the testator.

Inheritance quota – compulsory portions – freely available quotas

When someone dies, the distribution of his or her estate is determined by the surviving relatives. In addition to the spouse, the children are also entitled to a certain compulsory share of the estate. The difference between the legally prescribed inheritance shares and the compulsory shares is the freely available quota, which can be assigned to beneficiaries by means of a will.

The table below provides an overview of the amount of the freely available quota in different family situations.

Heirs left behind…	Statutory inheritance quota	Compulsory part from the estate	Available quota
Descendants (first parentel)	100 percent	50 percent	50 percent
Spouse	100 percent	50 percent	50 percent
Spouse and children	Children 50 percent Spouse 50 percent	Children 25 percent Spouse 25 percent	50 percent
Spouse and parents	Spouse 75 percent Parents 25 percent	Spouse 37,5 percent Parents 0 percent	62,5 percent
One parent and siblings	Parent 50 percent Siblings 50 percent	Parent 0 percent Siblings 0 percent	100 percent

Inheritance tax: The cantons always inherit in Switzerland as well

In Switzerland, the cantons are responsible for determining the inheritance tax. The canton in which the deceased had his or her last residence is responsible. The cantons also decide on tax exemption rules, such as allowances. Inheritance tax is generally payable by the heirs.

Inheritance tax and inheritance tax

Inheritance tax has two forms: inheritance tax and inheritance tax. The inheritance tax taxes all the assets of the deceased without regard to the individual heirs. The inheritance tax taxes each heir’s share of the estate according to his or her relationship (degree of kinship) to the deceased. In Switzerland, only Solothurn and Graubünden still have an inheritance tax. However, the municipalities there can also demand an inheritance tax.

Inheritance tax rates and exemption amounts of the cantons

The different tax laws in Switzerland make the assessment of inheritance tax complex. In general, the tax rate is progressive and certain allowances are taken into account depending on the degree of kinship. Thus, close relatives are entitled to higher allowances than distant ones.

• For spouses, no inheritance taxes are due in all cantons. The same applies for the most part to descendants. Only in Appenzell Innerrhoden, Lucerne, Neuchâtel and Vaud do children have to expect low inheritance taxes of 0.01 to 3.5 percent.
• For parents, the range in the cantons goes from pure tax exemption to a tax rate of fifteen percent. However, there are also tax-free amounts of up to 50,000 francs.
• Depending on the canton, siblings can expect an inheritance tax of up to 23 percent, with allowances of up to 30,000 francs.
• Tax rates for other heirs range from 12 to 49.50 percent, depending on the canton, and there are only small allowances.

Tax on inheritances abroad

In principle, there is a risk that the inheritance will be taxed by several countries. This may be the case, for example, if the deceased person or an heir resided abroad or if an inherited property is located abroad. In these cases, it must be clarified which law applies to the inheritance. In order to avoid heirs having to pay taxes more than once, Switzerland has concluded double taxation agreements with some states in which this is avoided.

Inheritance in Switzerland: the essential steps after death

After the death of a person, the relatives have to deal not only with the mourning but also with the inheritance matters. Those who know the most important points will save themselves some excitement. The following are therefore the essential steps.

• Submitting a will: As soon as you find a will, you must submit it to the authorities. The assessment of authenticity or correct compliance with formal requirements must also be left to the competent official body – this is what the law requires. In this respect, it is safest for the testator to file his or her will immediately with the appropriate office. Depending on the canton, this is the municipal administration, the district court, the inheritance office or the official notary’s office.
• Opening of the will: As a rule, the will is opened by the authorities within one month. This means that the will is read to all heirs present. For the opening, the office invites all legal heirs as well as those appointed in the will. From the day of the opening, many deadlines must be observed, such as the one-month deadline for filing an objection.
• Apply for a certificate of inheritance: This is the legitimation for the heirs. Only with this certificate of inheritance will you, as the heir, have access to the assets. It is applied for at the same authority that opens the will.
• Rejecting an inheritance if necessary: An inheritance does not necessarily have to be accepted. Sometimes heirs decide against accepting the inheritance for personal reasons. Concerns about having to assume responsibility for the decedent’s liabilities if the decedent was overindebted can also be a reason for disclaiming the inheritance. In such cases, the heir submits a written declaration of disclaimer to the court.
• Securing the inheritance: The competent authority is obliged ex officio to take any necessary measures to secure the inheritance. In some cases, this may mean sealing the inheritance, taking inventory or ordering an administration of the inheritance. Sealing means blocking assets and is provided for in cantonal law for certain cases. In particular, if there is no agreement in the determination of the assets, the authority will take appropriate measures.
• The community of heirs: If there are several heirs, they jointly form a community of heirs. Each individual heir has the right to divide the estate. Until the division of the estate, all heirs are joint owners. The co-heirs can exclude the division for a certain period of time. The testator can also exclude the division for a certain period of time in a decree. Likewise, the court has the possibility to postpone a division if this would be extremely unfavorable for the asset at the present time.
• Agreement among heirs or action for partition: There is not always agreement among heirs, particularly with regard to the valuation of the assets. In principle, the valuation has to be made according to the market value, not only in the case of real estate. However, this is a complex procedure, for example in the case of companies. If no agreement can be reached, an action for partition is brought. In this case, the court takes over the objective division. In the end, the community of heirs is dissolved.

Inherited assets: What heirs should pay attention to now

The more extensive the estate, the more diversified it usually is. In addition to financial assets, the decedent may have owned a house, an apartment or even his own company.

Pay particular attention to the following points in relation to the estate:

• Determine assets and debts: In principle, every heir has the legally guaranteed right to receive information about all of the decedent’s assets and debts. If the deceased has appointed an executor in his or her will, the executor is obliged to provide all heirs with comprehensive information regarding the deceased’s assets. Even in the case of unclear property circumstances, heirs may request the preparation of a public inventory within a period of one month after the date of the deceased’s death. As already explained in the section on community of heirs, assets such as securities or real estate do not have to be liquidated immediately if this would currently only be possible with considerable losses.
• Clarify pension fund assets: The beneficiaries are entitled to the claims from the pension fund assets after the death of the insured person. In most cases, there are spouses or orphans entitled to a pension and a survivor’s pension is paid. In all other cases, the pension fund regulations determine what happens to the pension fund assets. The regulations vary among pension funds. It is therefore possible for a saved capital to be forfeited and for it to benefit the community of insured persons.
• Observe deadlines for declaration of disclaimer: Do you want to disclaim your inheritance due to overindebtedness of the testator or for other reasons? If so, you must submit a written declaration of disclaimer to the competent authority within three months of becoming aware of the death.
• Financial planning for the inheritance: Unless heirs have the appropriate financial expertise themselves, they should take care of sound asset management in good time. Digital offerings today enable competent and at the same time cost-effective support even for manageable assets.

With appropriate preparation, testators avoid disputes in the event of inheritance

A carefully planned estate can help avoid conflicts and ensure that the testator’s last will is fulfilled.

Advance inheritance is one way in which parents, for example, can reduce their taxable assets during their lifetime and children can already take advantage of their inheritance. In addition, inheritance taxes can be saved if necessary. However, heirs with an advance withdrawal must have the advance withdrawal offset against their inheritance. Although children, for example, may thus be treated unequally, the compulsory portion may still not be undercut.

In order to document one’s own will, a will is a central matter. Important: Spouses each need their own will. Although a will cannot completely avoid legal difficulties, it simplifies matters. To ensure that your will is taken into account in the event of incapacity, you should also consider a living will and an advance directive.

One way of donating your assets to a social or charitable purpose is to set up a foundation. This can help ensure that heirs can use the assets in a dignified manner after the deceased’s death.

Family businesses sometimes suffer from the fact that succession is not precisely regulated. Anyone wishing to preserve their life’s work should therefore plan in good time during their lifetime.

In this context, the legal structure of the company plays a major role, as it can affect inheritance tax and tax treatment. It is therefore highly recommended to consult with an experienced expert in order to consider the legal and tax consequences.

Separated spouses should know that even in the event of separation, intestate succession applies. If this is not desired, it can only be excluded by divorce or in part by a prenuptial agreement.

Conclusion: Ensure one’s own will for the estate with planning during one’s lifetime.

Death and inheritance are unpopular topics during one’s lifetime, and people like to avoid them. However, problems arise at the latest in the case of inheritance, when disputes arise among the heirs. Frequently, however, unresolved inheritance issues already lead to disputes and disadvantages during one’s lifetime. This can be the case, for example, in the case of an unresolved company succession, as a result of which the development of the company and thus the preservation of the assets can ultimately suffer.

A correctly and unambiguously drafted will, a living will and an advance directive are the appropriate means of planning the estate at an early stage and documenting one’s own will. The clarity of the regulations and clarification with the family ensures the testator’s will and minimizes the potential for conflict. Particularly in the case of larger estates, a lawyer with expertise in Swiss inheritance law should therefore be consulted. In addition to legal clarification, heirs should think about appropriate financial planning for the estate at an early stage. Today, the financial market offers competent asset management services for almost all sizes.

Hier ist mehr Text

Reading Time: 3 minutes

It has been a turbulent few weeks for the global banking sector. Triggered by the bankruptcy of Silicon Valley Bank (SVB) and the liquidity problems of other US banks, this has now culminated in the takeover of Credit Suisse by UBS.

But how did it come about and what are the implications for wealth management? In this article you will find information.

What happened?

A brief summary of what happened: Sillicon Valley Bank in the U.S. recently ran into liquidity problems as a result of sharp interest rate hikes by the Federal Reserve. The bank’s problem was that it had invested a large part of its customer balances in long-dated U.S. government bonds, which are virtually considered a risk-free investment. However, these investments lost massive value due to the sharp interest rate increases last year, which exacerbated the long maturity of the securities.

In addition, the bank’s customers, which are increasingly young technology companies, increasingly withdrew their customer funds due to the current difficult economic environment. When it then became known that the bank had to sell bond positions at a large loss, a bank run ensued.

In the back of the mind that Credit Suisse already suffered from major problems and outflows of money last year, the events in the US now ensured that CS also saw massive withdrawals of funds, which ultimately led to it having to be taken over by UBS.

Impact on asset management

Here we see another good example of the fact that trust is a fundamental factor in this sector. Since this trust has been shaken among many, we would like to use the current occasion to discuss the possible impact of such a crisis on asset management.

1. Custodian Banks: The first point of contact between a crisis, such as that of Credit Suisse, and wealth management would be if the latter were used as a custodian bank. However, asset managers often work with multiple banks, regularly evaluating whether the relevant partner banks are still an appropriate place to hold client assets.
2. Securities as special assets: Securities held in custody at a bank that is experiencing financial difficulties are considered to be so-called special assets. This means that these assets may not be used to pay off creditors of the bank. This means that your securities are protected at all times.
3. Independence: Asset managers are usually not banks themselves and can act completely independently and therefore do not get into liquidity problems, even if all clients want to withdraw their assets. This also means that the asset manager will change custodian bank as soon as it becomes apparent that the financial situation of the respective partner bank is not good.
4. Impact on securities prices: A banking crisis can of course have an impact on securities prices, in the banking sector itself but also outside of it. We have seen this happen in recent weeks, when shares in banks that had nothing to do with the current situation have fallen massively in value. Your asset manager has an eye on current market events at all times and can often better assess how great the danger is for an existing securities portfolio. This makes it easier to distinguish whether it is a short-term reaction of the market or whether there is a need for action because fundamental economic factors have changed.

As you can see, asset managers are not completely immune to crises in the financial sector either. However, they help to better identify risks and act accordingly, minimizing the potential impact. Furthermore, your asset manager will advise you to spread your existing assets in cash across several banks. As in the case of Credit Suisse, we have seen that the actual loss of client assets is very unrealistic.

Now, one might say that this is only the case if the bank is appropriately large. However, smaller banks in particular have a much lower-risk business model than large banks, as they are not active in the high-risk business areas. Some banks also specialize entirely in holding customer assets in custody and facilitating securities trading, which in turn poses little liquidity risk.

While client assets are secured by the UBS takeover, the real losers are Credit Suisse’s investors and the reputation of the Swiss financial center.

Questions? We are here for you!

If you have any questions about this topic or would like to learn more about how we work with our client assets, we are always available to help. Simply get in touch with us.