(Temporary) vested benefits account strategy

Banks, Insurances & Third Pillar
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Hi everyone,

I’ve been reading you for a while, but now it’s time for me to post, too! While there are other threads regarding vested benefits accounts, I could not really find the answer to my situation, or they were quite old.

I’ve decided to take a break to go travelling for ~9 months. I’ll still be registered in Switzerland, and intend to come back to real life later on.
As I’m leaving my job for more than 6 months, I’ll have to transfer my second pillars (My current employers provide one main with AXA and one complementary with VZ) to a vested benefit account (compte de libre passage / Freizügigkeitskonto). These 2nd pillars represent ~12% of my net worth.

Finding a vested benefit account is not a problem, I’m more questioning the strategy I should apply:

  1. Transfer to a fund in equity (ex: with VIAC). This would give me a theoretical higher return on the long term. However, I’m not really talking long term here, and if market would dip in these 9 months, I might be forced to take it out at the wort moment once I’ll find another job (and another “mandatory” 2nd pillar)

  2. Transfer to a fund giving no/low return. Quite sad to see money performing so badly but at least I’m recovering my funds once I get back to a normal life

  3. Reading other threads, it’s not quite clear to me if I must transfer my money back to my future 2nd pillar provider once finding a new job. If keeping it separate is legal, then option 1 could be the best as it will get back to a long term strategy fund in which volatility can be absorbed. But I really want to ensure I’m not getting into shady business

What would your view be on that? Any other strategy I might have missed out?

Thanks!

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I read somewhere (I can’t remember where, maybe it was also a podcast) that you can transfer your assets from the 2nd pillar to two vested benefits accounts providers. One for the mandatory assets and one for the extra-mandatory assets. As soon as you are employed again, you only have to hand in your mandatory credit. The extra-mandatory assets can thus remain with VIAC and continue to be 100% invested (This would give you a better return than if the money was in the pension fund).

But: I have not found any information whether this is really true or whether it is a gray area. Personally, I would be interested to know exactly how this is handled.

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Not true from the point of the law, although enforcement is spotty.

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Found a source:

Bei einem Wiedereintritt in eine Pensionskasse müssen Sie nur den obligatorischen Teil, also eines der beiden Kontoguthaben wieder einzahlen. Den anderen, können Sie in Wertschriften investiert lassen – und so von den höheren erwarteten Renditen der Aktienmärkte profitieren.

(But I don’t know if that’s really practicable in every scenario)

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As far as I know, new employers always wants full pension benefits to be transferred to the new employer. You can always hide the facts but I wouldn’t really count on that as a strategy. There is also a buffer time sometimes like within 6 months move the money

So now the challenge you have is real

Option 1

choose a strategy which more or less mimic pension fund allocations in CH, then even if you need to transfer positions at loss, they would be reinvested in similar allocations. Problem is how to know what is standard pension fund allocation and how close your new employer would be to this standard. As far as I know CH pension funds hold a mix of real estate, fixed income, equity in similar proportions. And sometimes also alternative.

This would need a lot of thinking and research

Option 2

Just use the least volatile strategy for vested and chill. You don’t want to be feeling sad during 9 month vacation. You can always increase your 3rd pillar and non taxable asset allocation towards higher risk to balance it.

If I were you, I would choose option 2.

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"Treten die Versicherten in eine neue Vorsorgeeinrichtung ein, so müssen die Freizügigkeitseinrichtungen das Vorsorgekapital für die Erhaltung des Vorsorgeschutzes der neuen Vorsorgeeinrichtung überweisen.

(…)

Die Versicherten haben der Vorsorgeeinrichtung Einsicht in die Abrechnungen über die Austrittsleistung aus dem früheren Vorsorgeverhältnis zu gewähren.

Die Vorsorgeeinrichtung kann die Austrittsleistung aus dem früheren Vorsorgeverhältnis sowie das Vorsorgekapital aus einer Form der Vorsorgeschutzerhaltung für Rechnung der Versicherten einfordern."

Freizügigkeitsgesetz

There’s no provision limiting that obligation to only the mandatory amount, and the law clearly also applies to non-mandatory benefits (as in art 13, a provision for cases where they exceed the maximum buy-in that the new pension fund allows for in its regulations. And also in the minimum amount you’re entitled to according to art. 17 upon leaving).

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9 months is way too short to transfer your fund into equity. Move it to something very conservative with no or only super safe (aka government) CHF bond like return in order to avoid any drawdown.

Some practical background:

I have a … ahem, “friend” who quit his job and then moved his pillar 2 into two different Freizügigkeitsstiftungen, VIAC* and Finpension. That friend then (after a short break) took on a new job and moved the funds from VIAC to his new employer’s pillar 2. He forgot about his Finpension account.
Worked out just fine.

Additional comments:

Nobody asked him any questions.
The tax authorities don’t know about these funds and I am not sure they cared if they knew.
The people running the Freizügigkeitsstiftungen aren’t interested in whether you have a new employer or not. If anything, they are probably interested in you staying with them (moar fees!).
The new employer most of the time does not care. There’s no incentive to care.**
The pension fund at my new employer was happy (as I heard through the grapevine) to only receive one of the Freizügigkeitsfunds as pillar 2 money since at the time it was still challenging to actually invest it guaranteeing a (small but still) positive government mandated return with no drawdown ever and eventually, should the pensioner choose that option, to pay an again government set return on the mandatory portion of “your” accumulated capital (negative interest rates, does anyone remember? :sweat_smile: ).
To be clear, the government is interested in you moving all your pillar 2 money to a safe place (like a pension fund) to avoid you making stupid mistakes (and them paying for your mistake by having to subsudize you) when you allocate your “forgotten” money at the Freizügigkeitsstiftung 100% into the “fully risk tolerant” profile with two years to go until your retirement. Or - even worse! - nine months to go until your retirement … :wink:
However, there’s nobody at the government knowing about or enforcing things.

This friend’s forgotten Freizügigkeitsfunds at Finpension are only just now - a little over three years later - back with a tiny positive return.*** I’m pretty sure they’ll do just fine over the next decade or so that I, er, … I mean, that he plans to have that money invested, but anything below even just five years would be gambling, IMO.
YMMV, of course.

* See also my recent post on a different thread why you might want to avoid VIAC: Introduction + Anything Missing for RE? - Share your story - Mustachian Post Community

** In my corner case, my employer cares a little bit (moar fees!), as we’re an asset manager and some of the company’s pension fund gets invested in our own products. A little weird, I know, but the folks running our pension fund are mostly independent of us.
I say “mostly” because of course our company can choose a different company to run our pension fund, should they, you know, stupidly decide to not also use our products to run our pension fund. Which would be less fees for them. And in turn for us.
(Did I already mention that people in the asset management business are motivated by fees?)

***

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My friend will think about your friend’s action if she should change her job.
She’s not yet sure if the money isn’t better off in a new pension fund, but it’s good to remember some options when the time comes

edit:

You mean low fees, right? Because they only act in the clients’ best interest. Right?

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Oh, c’mon, anything else wouldn’t really make any sense, right! … uh, right?
Wait, um, just gotta think this over one more time…
… um, hey, look, it’s, ahem, …, well, it’s complicated.
But of course always in the client’s best interest!™

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Just for completeness, while the drawdown in the Freizügigkeitsstiftung may be a disadvantage, the option to have at least* two staggered payouts for your Kapitalbezug may already be worth it (even if you experience drawdowns with money parked at the 2nd Freizügigkeitsstiftung, given the also rather progressive taxes for these payouts).

* According to the really pro colleague of mine (not the goofy other “me” mentioned above), you can withdraw your pillar 2 in up to three tranches if you manage to partially retire in three turns, e.g. retire to 60% (after turning 60), collect 40% of your pillar 2, retire to 30% (collect 50% of your remaining pillar 2), finally retire fully (collect the rest).
Most easily accomplished if you’re selbstständig erwerbend, but perhaps your employer will play along. Since I heard about this literally just last week, I’ll certainly give it a try with my current employer (to retire in two tranches, and then, ahem, … remember my … excuse me: my friend’s forgotten Freizügigkeitsstiftung a year or two later).

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Some practical background:

I have a bank account abroad, and the bank doesn’t have any foreign (Swiss) address on file. I could just forget about that account when filing my taxes. Or applying for social welfare.

I‘m sure it would work out just fine. :woman_shrugging:

It’s non of their business (at all), how much you have in their pension fund.

(Small exception: Except, maybe, if they contribute towards your initial buy-in on an extraordinary basis)

Regardless if these days are over: as long as they run the risk of converting your capital into a monthly pension, they may care. They‘ve got incentive to care - particularly if you get so clever to only transfer your mandatory part in.

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The only thing your friend needs to do is make sure he doesn’t go over any contribution limits. The company would normally be able to track this and manage it for you, I mean, for your friend, but since they are not aware of the other amounts, you would need to track it to make sure you don’t exceed any contribution limits.

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You might have different accounts, already, like basic, 1e and early retirement. Twice, if you are married. I get your point, though. Depending on the size, it’s a good opportunity to split them up further.
And the jokes aside, I understand keeping a part in the Freizügigkeitsfund can be perfectly legal

Whereas this is not, it’s tax evasion

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You mean the buy-in should not exceed max buy-in ( MINUS vested benefits balance) or no buy in at all ? Asking for a friend.

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By the way, aren’t death benefits, and disability benefits based on 2nd pillar linked to the amount in the 2nd pillar?

I understand there is a pro to not move money from Finpension to 2nd pillar of new employer by forgetting it (this is more return)

But what are the Cons ?

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It depends on the plan. More favourable ones base those on your insured salary, alone.

Relatively stable returns in the pension fund, without direct exposure to market movements. Again, this depends on the individual pension fund and your asset allocation.
And the trustworthiness of the institution, but I’m not sure that’s a pro or con either way :smiley:

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Lots of people with lots of friends in this post :joy: good that we all seem to have a healthy social life :ok_hand:t3:

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That you don’t go over your maximum. The new PF would allow you to contribute to the maximum and then you would be over the limit by the amount you have in the VB account.

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Neither my friend - who told me he didn’t transfer anything. It appears to be the way you portray it - the rule says one thing but there is little or no enforcement, as the parties involved do not care, and no sanction.

The government may also care in the sense that current pension levels calculated from past, bloated government-set conversion rates are too high compared to the funds those cohorts contributed historically so pension funds must rely on cross-subsidizing those pensions by redirecting part of the performance gains that would have normally been due to current contributors, thereby ‚hiding‘ the bloating (other than causing dismal performance figures).

That aside, and playing devils advocate, who else could care - if one had too many staggered withdrawals from many different 2nd pillar account the tax authorities could care about you breaking their progressive tax schedules on capital withdrawals…

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Well, it’s Friday evening. Long day at work, kids in bed.
It’s time to relax, and you know what that means. A glass of wine, your favorite easy chair, and of course, commenting online on your friend’s pension fund.

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