Pension Fund Payout in Switzerland: Requirements, Deadlines, Tax

In short: Pension fund assets are tied up. They are paid out at retirement, at the earliest from age 63, and earlier only in the three cases listed in Art. 5 para. 1 FZG. Married policyholders and registered partners need their spouse’s written consent for every payout in money. The payout is taxed once, separately from other income.

A pension fund payout is the withdrawal of second-pillar assets as money instead of a pension. At retirement this takes the form of a lump-sum benefit, before that as a cash payout in the cases the Vested Benefits Act sets out. Anyone who merely changes jobs receives no money, only a vested benefit for the new fund.

This article describes the process and the tax consequences. Whether capital or a pension is the better option in a given case is covered in the article on Lump sum or pension.

Key facts at a glance

• The retirement benefit can be drawn early from age 63 and deferred up to age 70 (Art. 13 para. 2 BVG).
• The regulations may set a lower retirement age, no earlier than 58 (Art. 1i para. 1 BVV2).
• Before retirement, a cash payout is only possible in three cases (Art. 5 para. 1 FZG).
• At least a quarter of the mandatory retirement assets can be claimed as capital (Art. 37 para. 2 BVG).
• The capital withdrawal is permitted in at most three steps, one step covering all withdrawals made in a calendar year (Art. 13a para. 2 BVG).
• The capital benefit is taxed separately, as a full annual tax at one-fifth of the ordinary rates (Art. 38 DBG).

When can I have my pension fund paid out?

Normally at retirement. The retirement benefit can be drawn early from age 63, and the pension fund’s own regulations may set a lower age, no earlier than 58. Before this window, the fund only pays out if one of the three cash payout grounds applies, or if an advance withdrawal for home ownership is requested.

Two limits apply to the timing. On the upper end, deferral ends at age 70 (Art. 13 para. 2 BVG). On the lower end, the floor is 58; an earlier retirement is only permitted for operational restructuring and for employment relationships where an earlier retirement age is provided for reasons of public safety (Art. 1i para. 2 BVV2).

How does the payout work at retirement?

Retirement benefits are usually paid as a pension (Art. 37 para. 1 BVG). Anyone who wants capital instead must request it. The statutory entitlement covers at least a quarter of the mandatory retirement assets (Art. 37 para. 2 BVG); many pension funds allow more, up to the full amount. What applies is set out in the fund’s regulations.

Drawing the capital is permitted in at most three steps (Art. 13a para. 2 BVG). One step covers all capital withdrawals made in a calendar year, even if salary is insured with several pension funds. The first partial withdrawal must amount to at least 20 percent of the retirement benefit, unless the regulations allow a lower share (Art. 13a para. 3 BVG).

If you are married or in a registered partnership, the lump-sum option is only permitted with your spouse’s written consent (Art. 37a para. 1 BVG). Without this signature, the fund pays a pension instead.

When is a cash payout possible before retirement?

In three cases, and the list in Art. 5 para. 1 FZG is exhaustive. A personal setback, dismissal, or financial hardship are not among them. Drawing a full disability pension is likewise not a cash payout ground for a pension fund; that ground only applies to assets already held in a vested benefits account.

On moving to certain states, a restriction applies to the mandatory portion of the retirement assets (Art. 25f FZG). For an EU state and for Iceland and Norway it depends on whether compulsory insurance against the risks of old age, death, and disability continues there. For Liechtenstein the law names residence alone, without that condition. The blocked portion stays in a vested benefits account, and the non-compulsory portion is not affected.

The cash payout also requires the written consent of the spouse for married policyholders and registered partners (Art. 5 para. 2 FZG). If consent cannot be obtained, or is refused without good cause, the matter can be brought before the civil court (Art. 5 para. 3 FZG).

Which four other situations draw on the assets?

Four situations draw on pension fund assets, each following its own provisions: home ownership, divorce, partial retirement, and emigration. The first three are not a cash payout under Art. 5 FZG, emigration is. Each is listed here with its legal basis and a link to the relevant article.

Home ownership. Up to three years before entitlement to retirement benefits arises, an amount can be requested for owner-occupied residential property (Art. 30c BVG). The advance withdrawal reduces the retirement assets and thus the later benefit; voluntary purchases are only possible again once it has been repaid (Art. 79b para. 3 BVG).

Divorce. The assets accumulated during the marriage are divided, and nothing is paid out in the process: the share goes to the other spouse’s pension fund. How the division of occupational pension assets works is covered in the article on Divorce and finances.

Partial retirement. Anyone reducing their workload in stages can draw the retirement benefit in staggered steps, up to three (Art. 13a BVG). What needs to be clarified is covered in the article on Partial retirement.

Emigration. Leaving Switzerland is the first of the three cash payout grounds, but it brings its own tax consequences and, depending on the destination state, the restriction described above. The details are covered in the article on Emigrating and finances.

Which deadlines do I need to observe?

Three deadlines decide whether a capital payout is still possible at all. Two of them are set by law, the third by your pension fund’s own regulations. It is precisely the regulatory deadline that gets missed most often, because it is published nowhere centrally and, depending on the fund, falls well in advance.

• Notification deadline for the capital withdrawal. Set out in the regulations, it can lie up to three years before retirement. Once it has passed, the fund pays a pension instead.
• Blocking period after a purchase. Following voluntary purchases, the resulting benefits cannot be drawn as capital for three years (Art. 79b para. 3 BVG).
• Three-year limit for home ownership. An advance withdrawal is possible up to three years before entitlement to retirement benefits arises (Art. 30c BVG), not after.

How is a pension fund payout taxed?

Capital benefits from occupational pension provision are taxed separately and are always subject to a full annual tax. At federal level, it is calculated at one-fifth of the ordinary rates (Art. 38 DBG). Cantons likewise tax it separately (Art. 11 para. 3 StHG), applying their own, mostly progressive rates.

What counts is the place of residence when the benefit falls due, not the residence at the end of the tax period (Art. 4b para. 1 StHG). How widely the burden varies between cantons is shown in the comparison of the capital withdrawal tax across all 26 cantonal capitals.

For policyholders resident abroad, a withholding tax at the seat of the pension fund replaces the ordinary assessment (Art. 35 para. 1 let. g StHG). Whether and to what extent it can be reclaimed depends on the double taxation agreement with the country of residence.

Because the rates are progressive, staggering makes a difference: capital from the second pillar and pillar 3a is added together within the same tax year, and for married couples across both spouses. Spreading the three permitted steps across different years also spreads the tax.

What happens if no payout ground applies?

Then the money stays within the pension system and is not paid out. When changing jobs, the previous fund transfers the vested benefit to the new employer’s pension fund. If there is none, for example during a career break or a stay abroad, the assets go to a vested benefits account or a vested benefits policy.

Its own withdrawal rules then apply: payout no earlier than five years before the reference age, due once the reference age is reached, deferral of at most five years if continued employment can be proven (Art. 16 para. 1 FZV). Unlike with a pension fund, drawing a full disability pension from the federal disability insurance can here also trigger an early payout (Art. 16 para. 2 FZV). What to watch for regarding choice of provider, interest, and fees is covered in the article on the vested benefits account.

Frequently asked questions about pension fund payouts

When can I have my pension fund paid out?

Normally at retirement. The retirement benefit can be drawn early from age 63 (Art. 13 para. 2 BVG), and the pension fund regulations may set a lower age, no earlier than 58 (Art. 1i para. 1 BVV2). Before that, a payout is only possible in the three cases listed in Art. 5 para. 1 FZG.

In which cases is a pension fund paid out early in cash?

In three: permanently leaving Switzerland, taking up self-employment without mandatory occupational pension cover, and a credit balance smaller than the individual’s own annual contribution (Art. 5 para. 1 FZG). This list is exhaustive. A disability pension is not among them, that ground only applies to assets already held in a vested benefits account.

Do I need my spouse’s consent?

Yes, in writing, and in both cases. Art. 5 para. 2 FZG requires it for the cash payout, Art. 37a para. 1 BVG for the lump-sum option at retirement. Without the signature, the pension fund does not pay out. If consent is refused without good cause, the matter can be brought before the civil court.

Can I withdraw the capital in several steps?

Drawing the retirement benefit as capital is permitted in at most three steps (Art. 13a para. 2 BVG). One step covers all capital withdrawals made in a calendar year. The first partial withdrawal must amount to at least 20 percent of the retirement benefit, unless the regulations allow a lower share (Art. 13a para. 3 BVG).

How is a pension fund payout taxed?

Separately from other income, as a full annual tax at one-fifth of the ordinary rates (Art. 38 DBG). Cantons also tax it separately (Art. 11 para. 3 StHG). What counts is the place of residence at the time the benefit falls due, not at year-end (Art. 4b para. 1 StHG).