Leaving Switzerland and withdrawing 2nd pillar (pension)

Taxes
23

Whether you are able to withdraw the mandatory part seems to depend on whether you need to pay social security in the destination EU country. If you don’t work you may be able to claim a payout of the mandatory part back too.

Based on the second part of your answer it may be smart to leave the mandatory alone in CH and only withdraw the supplementary part of 2 pillar and 3 pillar. Perhaps they are viewed differently. Do you have any sources about this?

24

Calculate time until the tax return has been submitted and your tax auditor is ready to stamp your tax-at-source reclaim form. Can take up to 2 years. Here’s how to do it (in German, use the translate function on the site)

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25

Depending on the destination country. Some countries, many people can. Others… hardly anybody.

I would suggest to take a look at Portugal, if one isn’t particular about the destination country to move.

26

I asked my pension fund:

  1. If I leave Switzerland permanently, what is required to pay out the extra-mandatory part of my 2 pillar as a lump sum? A) We need a leaving permit from population office of your canton of residence
  2. Can the lump sum ever be paid out before the official date of ending residency so that it is taxable at the applicable rate in my canton of residence? A) Not possible, against the regulations. Only after the leaving date
  3. I understand that is possible to withdraw the mandatory part of the 2nd pillar when moving to an EU country if you are not subject to pay social security in the destination country. What is required? A) The BVG-amount must go to a libre passage account of a Swiss bank (law) and you can only close this once 60 years old.
    (note: I read elsewhere that there is a lot of confusion on the rules on this last part)

In summary omitting to declare in the destination country could be a strategy but I value sleeping at night

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27

Apparently from January 1st (thanks to Brexit) people moving to the UK can cash out all of their pension assets, without any requirement on the social security status.

https://news.liberty.ch/en/news/artikel/?tx_ttnews[tt_news]=1034&cHash=a4555da188255327f0c65abac02ce9ef

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28

Correct.

Even people that moved there earlier, when it was still considered a EU/EFTA country.

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29

link to an overview of income tax treatment of 2nd and 3rd pillar insurance products in Europe from 2017

In summary

  1. Double Tax Agreement between CH and the respective country determines in which country the 2nd and 3rd pillar are taxable (see post above)
  2. The overview in this post gives an overview how the tax is applied in each country

Example: leave CH permanently to Spain and withdraw 2 & 3 pillar. CH -ES DTA says pensions are taxed in the country of residence → Spain . According to the overview in this post the amounts would be taxed in Spain as earned income (not savings income). Marginal rate depends by region. Example: Catalunya 48% on amounts over Eur 175k

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30

I know that you can cash out your whole retirement account when leaving CH and NOT going to an EU country; you get the money you set aside and the employer’s contributions.

However, I’m not super clear on a few things:

  • are there taxes to pay? if so, what are they (income tax? special tax?)
  • is the money taxed in Switzerland or in your new residence country?
  • is it better from a tax standpoint to become self-employed and cash the 2nd pillar out while still a resident instead? what are the criteria to meet for becoming self-employed, is saying “I’m self-employed now” and not having a salaried job enough?

Thanks

31

I haven’t actually done it myself yet, but I can answer your questions.

  1. There is a Swiss withholding tax. This is deducted by the vested benefits foundation before they transfer the money. It is meant to encourage you to declare the money in your country of residence. The size of this tax depends on which canton the vested benefits foundation is domiciled in. Currently the lowest withholding taxes apply to vested benefits foundations in the canton of Schwyz.
  2. The money is taxable in the country you are resident in. If that country has a relevant double taxation agreement with Switzerland, you can reclaim the Swiss withholding tax. If it does not, then you cannot, and that is where the size of the Swiss withholding tax becomes relevant. You can find a useful map showing countries which have relevant pillar 2 and pillar 3a tax agreements with Switzerland here: https://www.swissinfo.ch/ger/wirtschaft/auslandschweizer_auswandern-und-pensionskasse--so-spart-man-dabei-steuern/43670970
  3. Depending on which country you are moving to, withdrawing your benefits while still in Switzerland can be advantageous. For example, if you are moving to a country where the money would be taxed as income at high income tax rates, paying the low Swiss capital withdrawal tax is certainly preferable. On the other hand, if you are moving to a country with low or no taxes and a relevant DTA, you are better off withdrawing when you are there, and then reclaiming the Swiss withholding tax. If you are moving to a country without a relevant DTA, then withdrawing while still in Switzerland is almost always preferrable, because if you withdraw after moving you will pay both the Swiss withholding tax which you cannot reclaim, and the taxes applicable in your country of residence.
    The capital withdrawal tax you pay as a resident of Switzerland is progressive, and varies between cantons. The benefits are taxed separately from your other income, so the progression only applies to the amount you withdraw. If you withdraw over two years (two different vested benefits accounts), then progression is based on the amount withdrawn in one tax year (not on your full benefits), so doing this can save you money.
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32

Thanks. Are you talking about the third pillar or the second pillar, because I don’t think it’s possible to have more than one second pillar account, right?

33

When you quit your job, you can split it (typically in two).

34

I see, so if I worked here 10 years, I can have one account holding 5 years and the other account holding the other 5 years. Then I withdraw one account each year and so I’m taxed on 5 years worth of money in the first year, and 5 years in the second year vs the whole 10 years at once?

35

I am not yet clear that you can really do this. In a separate thread, one of the forum contributors suggested you could settle your taxes to get the document from the commune that you were leaving before actually having moved to the new country, and present the document to the pension fund which should be enough for the pension fund to pay out.

However my pension fund and also Valuepension vested benefits fund told me they would not be allowed to pay out until after the departure date (meaning, when you are already resident in the new country). Perhaps other pension funds would approach this differently, however I do not know which ones.

The other option is to become self employed before leaving. In that case 2nd pillar can be cashed out in full I believe (subject to swiss taxes)

36

I’m wondering how do you do that in practice. Do you simply quit your job and say “I’m self-employed” without claiming unemployment benefits or are there more criteria (like you have to have clients, income, incorporate, etc)?

37

It would only really make sense if you would become self-employed or start your own business anyway. In terms of taking special steps (i.e. moving to another canton, becoming self-employed) just to save on taxes, the potential savings rarely warrant that, though there are situations where they may. For example, if you were moving to a country where withdrawing your benefits would put you in the top bracket and knock, say, 30% off your savings, I’d say being self-employed for a while to cash out at favorable Swiss tax rates could be preferable, assuming your income is not affected during that time.

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38

I was told by someone who became a coach, that they had to show 2 invoices issued to clients and were able to withdraw the whole 2nd pillar. Have not done this myself so I cannot verify this

This was my thought about moving to Spain. A 2nd pillar withdrawal for someone having worked several years in CH and withdrawing once resident in Spain could get into tax brackets of >45%, depending on the region. Discussed in a separate thread somewhere…

39

Unless you need the cash, might be worth keeping in 2nd pillar for as long as possible anyway, since valuepension allows arbitrary asset allocation, has favorable treaty benefits (e.g. 0% US withholding) and it’s going to be tax free growth in many countries (I’d expect in all EU countries at least).

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40

My idea is to move to a country out of the EU after Switzerland so that I can travel for a bit and get the money as a lump sum. Then eventually move back to Europe, but I’d like to be able to use the money as I’m retiring early once I’m leaving Switzerland.

My understanding is that if you’re in a EU country, then the funds must be transferred to that EU country’s pension system and so its locked again until you turn 65+ which is not what I want.

But you’re saying it’s possible to keep the money in Switzerland while being able to control how it’s invested and withdraw from it to pay for living expenses, even when living in the EU?

41

Your benefits are not transferred to the EU country’s pension system. The (mandatory) benefits must stay in a Swiss vested benefits foundation until you either retire or are able to withdraw them prematurely (e.g. you become self-employed or buy a house). You can withdraw possible voluntary benefits.

So yes, even if you move to an EU/EFTA country, the benefits stay in Switzerland and you can transfer them to new Swiss vested benefits foundations/solutions of your choice until you retire/withdraw. BUT you cannot withdraw them to pay living expenses. The conditions for withdrawal are just the same as if you lived in Switzerland.

If you are looking to fully withdraw all of your benefits early, your options are:

  • Become self-employed (i.e. service companies as a consultant rather than an employee. Must be at least two) and then withdraw your benefits. In this case you will pay your canton’s capital withdrawal tax. Ideally, you will withdraw over two tax years, as capital withdrawal taxes are progressive.
  • Move to a non-EU/EFTA country which has low/no income taxes (or exempts pension benefits) and a bilateral agreement with Switzerland. Then reclaim the Swiss withholding tax.
  • Move to a non-EU/EFTA country which has low/no tax but does not have a relevant DTA. In this case, you cannot reclaim the Swiss withholding tax, so you will want your benefits to be at a vested benefits foundation in canton Schwyz and you will ideally withdraw them over two years as Swiss withholding taxes are progressive.
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42

Another option to withdraw all the benefits. If you move to an EU/EFTA country, I have read that if you are not subject to social security in that country, you can also withdraw the mandatory part. This situation can arise if you are not working in that country. It is necessary to provide the pension plan in CH a statement from the authorities in the destination country that you are not subject to social security.