The time has come for me. I am leaving Switzerland. Not ready to FIRE but for personal reasons I don’t want to live here anymore :-/ Will still work towards FIRE though, it will just take longer.
I am relocating to a EU country, so I want to know what to do with my 1st and 2nd pillars.
1st - I understand there is no way to cash this out, this always stays in Switzerland. Will I get something from this once I retire or should I keep it in mind or I completely forget about this?
2nd - I have read that since I move to a EU country, the 2a pillar moves to a vested benefits, it cannot be cashed out. What does that mean then, that I will be able to cash it out once I get to retirement age?
2b pillar can be cashed out, I understand those are the voluntary contributions, and so far I didn’t do any but I will ask if my employer did.
Depending on your social status in your new EU country, you may be eligible for a full payout (much valuable info in that thread, too!) upon leaving. Or non-mandatory part only, with the mandatory part having to stay on a Swiss vested benefits product until a few years before retirement age.
Non-mandatory meaning benefits that exceed the legally required minimum old-age savings credits. Do not confuse them with voluntary contributions or “freiwillige Einkäufe”. The latter will, as the name implies, never be legally required either. But many people will have non-mandatory benefits because their pension fund and its rules provided for them (thereby exceeding legally required minimums), without ever having chosen to contribute voluntarily.
On another note, it may make sense not to cash out your Swiss 2nd pillar prematurely, even if you could.
You could also invest and leave them on a vested benefits securities account in Switzerland, such as valuepension or VIAC (both not to be confused with 3rd pillar account products, even if they may effectively be run by the same people).
It will be more costly than managing them yourself as part your liquid assets, e.g. your IBKR account. But you may likely enjoy tax-free appreciation and compounding*. That is, not have to pay taxes on interest, distributions, wealth or capital gains (in cases of portfolio shifts).
Depending on the tax treatment and rates of Swiss 2nd pillar accounts in your case and country, that may be worth paying the higher fees for such products in Switzerland
* I would assume so at least for EU/EFTA countries, that harmonisation of social security and taxation will not have the account taxed before cashing out. Beware of other countries though, if you intend to keep things legal (worst case, they may consider it a taxable account as any other).
Oh, thank you so much @San_Francisco . That thread seems full of good info, will read it.
Can you please explain me why I should not forget about 1st pillar AHV/AVS?
And also, for the 2nd pillar, why would I not try as hard as possible to cash it out? Even if with VIAC you mentioned. After all, I have been living 3yrs in Switzerland, how much should I expect to get once I retire from this? The equivalent of 30 CHF per month? 100 CHF? Does that really justify not trying to find a way to get that money back and use it for something more lucrative?
That money is free to invest as you please, and might grow tax free (and get a reduced tax rate on withdrawal). As mentioned by @San_Francisco it’s possible you won’t get a better deal in the country you’re settling in (0.5% all-in fee, with tax free growth might be better than your local options).
“Individuals who have paid insurance contributions in more than one signatory state are entitled to a pension from each state in which they have been insured for a minimum of one year.”
If you aren’t insured and then retiring with a Swiss (2nd pillar) pension fund, you are not going to get a monthly 2nd pillar pension - only a lump-sump payment. (In practice, since hardly any vested benefits foundation will convert your capital into a monthly pension. They aren’t legally required to. Even if they did and you had lots more in capital, it would likely not be worth it)
On yet another note, let’s keep in mind that you’re still eligible for early withdrawal of 2nd pillar benefits according to the promotion of home ownership scheme. That is for acquiring - or even renovating - a personally owned residence. Even if your mandatory benefits are ineligible for payout due to emigration because of your social security status.
Hmm… that seems convincing. And then whatever amount I have generated I will get it from retirement age until I die?
And the amount is increased only by what it generates if you put it in VIAC or similar or the government adjusts the inflation also? Because I will still have to wait 25 or 35 yrs for the retirement (depending if they keep increasing the age).
You should read up on pillar2, this is a totally private scheme (money is yours, government won’t bail you out, there’s some minimum interests etc. but those I think don’t apply to your case, only for employed people). And I think if you’re not employed you won’t have a choice, you will only get a lump sum of whatever capital you managed to accumulate.
I see. I think I am starting to understand. Retirement pension comes from both 1st and 2nd pillar, 2nd is private and the government forces you to have it so it kind of does the paternalistic thing for you, so government doesn’t end up having to sustain you if you end up becoming homeless because you didn’t save for retirement.
Am I getting this right?
I have read about it btw, even the HR guy from my job has explained me, I still don’t get it 100% sorry :-/
It’s two separate systems, one government-run and one privately (sort of).
That’s taking it a bit too far but…
Anyway, pillar 1 (AHV/AVS) is supposed to cover your very basic needs, at a maximum monthly pension of CHF 2450/month. Pillar 2 pensions are supposed to (more or less) cover your standard of living during retirement.