Change of employer: How to secure your pension fund entitlements

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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.