Vested Benefit Accounts

Finance, Taxes, Banking, Insurance and Retirement
1
So a friend asked me about this, and my knowledge is sketchy and probably not current, so looking for some imput please.

The person was made redundant from 01/05/2023 at age 62, so 2 years from retirement. They are currently starting the process at the RAV, and will see how that goes, but they will not stay in CH and will ultimately retire to an EU country. So basically will look to decide if they will stay in CH, effectively to maximise their RAV entitlement, or just say "I'm off" and take early retirement.

They have the option due to age, to pay into a risk element with the provider of their old company pension scheme, and "chose" a salary and make contribution to enhance the retirement fund, or transfer the sizable captial sum into a Vested Benefits Account (VBA).

Q1. What would the position with the RAV be if they took the pension as offered by the company now, but continued to look for work in CH. Would the amount they would recieve in pension be deducted from the total payment from the ALK?

Q2. Is there a comparison tools for VBA's, or are they all pretty much the same?

Q3. If they deposit the capital into the VBA and leave Switzerland permenantly for and EU country, can the capital be taken out as a lump sum, or would they have to use the capital to buy a pension in CH?

Thanks in advance for any guidence.

2

Given how close to retirement the person is, it is likely they may be eligible for an early retirement. In such case, I do not think they would get any unemployment benefits. The pension would be permanently reduced by the extra years drawn early.

If they transfer the capital into a VBA, they can later withdraw it as lump sum - upon retirement or earlier, depending on the social security agreement between their new country and Switzerland. Most VBAs only provide a lump sum payout, not a pension like the second pillar pension funds.

If the person prefers the longer-term “safety” of a pension, the option of early retirement or continuing the external membership and paying for risk insurance and some savings contribution is very good (assuming the fund they were with is performing ok and the plan itself works well).

I have not seen much useful comparison tools for VBAs. These differ in terms of fees and flexibility of investment choices they offer. If the time horizon is quite short (a couple of years), the suitable investment options are quite limited to manage the risk-return profile anyway.
The one comparator is at Moneyland - https://www.moneyland.ch/en/vestedbenefitsaccount/index which allows to conmpare the interest for their VBA savings account. This does not include the investment options.

3
I don’t have an answer on the pension side of things, but the person should check out their situation on the healthcare care and social benefits as well as they may still need to pay Swiss health insurance in retirement if they retire to an EU/EEA country.

4
In some circumstances (sorry, don't know the rules) any current insurance cover, e.g. accident insurance, can and should be continued through the employer for at least 30 days or so, to ensure that the ex-employee doesn't have a gap in cover.

5

https://web.aeis.ch/DE/home
This organisation is a government mandated agency that holds vested benefits, if they have nowhere else to go.

There, in another case, we were told that sometimes employers will allow an outgoing employee who is very near to retirement age to continue membership of the pension scheme.

Whereas during the employment contract the employer and employee each contributed a portion, in such a new, voluntary extension of the cover, the ex-employee would be responsible for both the employee’s and the employer’s contribution. Obviously that costs. However, the advisor at the Stiftung Auffangeinreichtung BVG said he’d recommend getting the cacluations done, as it can certainly be worth those extra costs of extending the pension coverage, so as not to suffer the penalties (lesser percentage of pension) of early retirement.

6
This is not the case. I have a 63 year old friend on the RAV. He's been eligible for early retirement since he started on the RAV.

7
Similar situation then NATS, this person has just turned 62.

They have been actively looking for another job since being put on gardening leave in Nov, and used a template of my old RAV job search form, edited with their details (obviously) to record jobs applied for and outcomes etc. They have even had some interviews, getting to the final 2 for 1 senior analyst post with a big pharma, but they went for someone younger. Understandable really, who wants to take someone on at that level who only has 2 years max' shelf life.

They are currently starting the process with the RAV and have had the 1st meeting with their adviser, and a 2nd scheduled for next month. So they will see how the process with the RAV goes. They have been told:

- due to salary level there is a waiting period of 60 days before ALK payments

start, ok no problem,

- they have a 550 day entiltlement,

- they don't have to report in the last 6 months before retirement (age 64)

- as they are UK citizens, and would retire to France, but since Brexit it is no

longer possible to port the benefit (thats where my knowledge fails down, my

RAV experience was in 2014).

They did cover with the pension provider she can stay in the scheme which is financially viable, at a reduce contribution level, so they are doing a bang for buck analysis on that. What they never asked either the pension provider or at the 1st meeting with the RAV, partly due to information overload, and also they didn't think of it, is if they do take early retirement (accepting that is a reduced pension, but actually not that much or a reduction)...

- what impact that would the pension payment have on payments from the ALK, as she would still stay CH and continue to look for work to maintain eligibilty?

- as her entitlement to ALK is 550 days, that extends past their 64th birthday, does the payment from the ALK stop at their 64th birthday?

The person, due to hard graft is in a position to maintain their lifestyle, and still save from the ALK payments they will recieve. Just navigationg the otpion for the pension is confusing, and trying to wade through the quantative pro's and cons on paper is a little challenging (hence looking for other peoples opinions). There is also the fact they know they will not stay in CH, so there is a psycological side, of the new life waiting, and just wanting to start it.

8
Good point - I left out in my text one important detail that I had in mind

If they start drawing the early retirement pension, they wouldn't be eligible to RAV. Just by being eligible but not drawing, no issue ...

9
If the intention is to place the funds in a Vested Benefit Account (normally funds are split between two VBA’s accounts in different institutions) and then withdraw the funds having moved to an EU country, there will be a withholding tax based on where the fund is located. It is beneficial to place the funds in a Kanton with a low withholding tax - there are significant differences between the Kantons, Kanton Schwyz has the most favourable rates. Then, there are tax implications based on wherever the person has relocated to and that also needs to be understood in advance.

10
Good points,.

The person currently lives in Zug, and has a 3rd pillar with USB, but they don't get good press for their VBA, and I certtainly had high charges and not great returns on mine. I think there will be 7.5% tax when the money goes from CH and arrives in France, but I'll check on that.

11
I was under the impression it was elegibility for, and actively seeking work, that was the criteria for the RAV? So if someone is doing that, and also has the entitlement to claim the monies from there previous employers scheme that disqualifies then from the RAV?

I couldn't see, or maybe missed anything about this specifically, hence the question. The pension entitlemnt is good by UK or French standards, but not great in terms of CH salary levels.

12
just bear in mind there are two separate taxes applicable in this case:

1) the "withholding tax" based on where the fund is located in Switzerland

2) the applicable taxes in France

Finally, you would get a refund or credit for the "CH withholding tax" as far as I know.