What happens to your retirement savings when you move away?

Switzerland's pension system is designed to ensure financial security during retirement. There are fixed rules and regulations that have been in place for years. Unfortunately, most of the regulations are aimed at Swiss residents living, working and retiring in Switzerland. If you plan to move away from Switzerland, or are an expat, then the information out there might not be applicable to you. I believe it is crucial for you to understand what happens to your retirement savings when you move. That is why this article will explore the fate of your first pillar contributions, rules governing the withdrawal of second pillar funds, and the flexibility of the third pillar when relocating. We will also delve into tax implications and common questions about continuing contributions from abroad, transferring savings, and the potential impact of moving back to Switzerland. By the end, you'll have a clear roadmap to manage your Swiss pension savings effectively when planning a move abroad. Let's get started!

Table of contents

• The Swiss Pension System: Quick Recap
• What happens to your 1st pillar contributions when you move away?
• What happens to your 2nd pillar contributions when you move away?
• What happens to your 3rd pillar contributions when you move away?
• My advice for expats living in Switzerland
• Frequently asked questions 

The Swiss Pension System: Quick Recap

If you live and work in Switzerland, you will be familiar with the 3 pillar pension system:

We’re looking at the pillar system through a pension lens only now…

First pillar: State provision

• Mandatory for employees and automatically deducted from your payroll
• Should cover your basic living expenses in retirement 

Second pillar: Occupational pension

• Mandatory for most employees
• Should ensure a good living standard during retirement

I’ve covered the question whether or not you should close contribution gaps in your 2nd pillar in this blog article. Don’t miss it!

Third pillar: Private provision

• Voluntary pension scheme divided into 3a and 3b pillars
• Provides tax benefits for contributors
• Allows you to set aside more funds for a comfortable retirement

What happens to your 1st pillar contributions when you move away?

Let’s look at what will happen to your 1st pillar contributions when leaving Switzerland. First of all: In most cases, your right to your 1st pillar pension doesn’t cease to exist when you are leaving the country. Yay!

Can you access the contributions you’ve made before moving away?

To determine whether you will be able to do so, we need to know:

• What nationality you have
• What country you are moving to (EU / EFTA / others)

You will NOT BE able to withdraw your current funds when:

• You are a Swiss citizen
• You are an EU citizen
• You are a citizen from a country that has a social security treaty with Switzerland

You will BE able to withdraw your current funds when:

• You are a citizen from a country outside of the EU without a social security treaty with Switzerland

In the ladder cases, you will have to notify AHV pension once you reach your retirement age so that they can start paying out your pension.

I would calculate through how much you’ve contributed, thus would get paid out, versus how much coverage you’d receive if you leave or even do voluntary contributions. 

What happens to your 2nd pillar contributions when you move away?

The funds in your 2nd pillar are treated a little bit differently as they are considered your own personal capital. Should you decide to leave the country, you will be able to withdraw the funds currently available in your pension plan. This holds true for both Swiss citizens and foreigners. 

The state differentiates between obligatory and over-obligatory contributions and whether you are moving to an EU / EFTA country or not:

The applicable source tax (Quellensteuer) is dependent on where your funds are lying with which foundation and where that foundation is incorporated. These source taxes can vary per canton - drastically. Have a look at your canton’s source tax percentage to determine the best way forward for your 2nd pillar – please don’t withdraw capital before checking it first! Canton Zug and Canton Schwyz are known to have very little source taxes.

Important: Should you move to a country that has a double tax treaty in place with Switzerland, you will be able to get a refund for the source tax. However, you might have to pay income taxes in the new country - keep your eyes wide open. In some cases it might make sense to leave it in the Freizügigkeits account and extract once you’re back in Switzerland and going into retirement.

*If you decide to park your contributions, make sure to split them into two different accounts, as you are only allowed to pull out the funds in full. With two accounts, you gain flexibility when accessing your funds: You could use one account to buy a house or start a business and the other one for retirement. Also: Funds within your Freizügigkeitskonto can be invested (just like your 3a pillar), but keep your time horizon in mind before making any decisions.

What happens to your 3rd pillar contributions when you move away?

As your 3rd pillar contributions are voluntary, the rules around withdrawals are more relaxed. You will be able to withdraw the entire funds, no matter what nationality you have and where you are moving to. Similar to the 2nd pillar, source tax will be applied that you can claim back under a double tax treaty. Eyes open.

My advice for expats living in Switzerland

As an expat living in Switzerland, you might have a mid to long-term plan of moving back home thus away from Switzerland again. Unfortunately, you will still be forced to pay into the Swiss pension scheme, even if you are not going to retire here. My advice would be to pull out your 2nd and 3rd pillar funds once you’ve determined that you are indeed going back home for good. We’ve established early in this article that the amount of withdrawal depends on your nationality and the country you’re moving back to.

In all scenarios your withdrawals will be taxed, so make sure you plan accordingly! It makes a HUGE difference in which canton your money is located. Think about source tax before choosing your 3a pillar provider! That way, you can choose a provider that has a base in canton Schwyz for example with the lowest source tax % so that you can take home as much as possible from your contributions. You could work with finpension or pensexpert. 

The same applies to your 2nd pillar: You might not be able to influence your past contributions, but you can influence your “Freizügigkeitskonto”. Similar to the 3a, your money should be parked in canton Schwyz to avoid high source taxes. Finpension and Pensexpert are your players.

Conclusion

You have lots to think about and organize when planning to move abroad. Finding a new job, a new house, saying goodbye to friends and family. And after reading this article you know that you’ll have to think hard about your retirement savings in Switzerland, too. The key is information and preparation. You have done the first step and you know now what possibilities you have for your 1st, 2nd and 3rd pillar contributions once you move away. If you are still uncertain about what to do or you have a special personal situation that you’d like to discuss, then contact me here, so we can find the best way forward for your retirement.

Frequently asked questions

Should you continue paying into the pension system voluntarily from abroad? 

You will only be able to make contributions from abroad to the 1st pillar (AHV). Certain conditions apply:

• You must be a Swiss national or EU / EFTA citizen
• You need to live outside of the EU / EFTA zone 
• You will need to have contributed for at least 5 consecutive years
• You need to file the paperwork for voluntary contributions latest 12 months after leaving Switzerland.

In my opinion, voluntary contributions make sense, especially if there is a possibility that you might come back to Switzerland at some point later in life or simply would like to receive additional coverage in case of disability or at retirement from the Swiss system. It doesn’t cost much per year and provides you with additional insurance. You can calculate your AHV contributions with this online tool. You will see that the calculation takes into account your wealth, so voluntary contributions make sense, if you’re not super wealthy (yet!).

How are retirement savings taxed when you leave the country?

Source tax is applicable to all withdrawals, no matter what pillar. Remember: The % of source tax is determined by your canton. Schwyz and Zug have the lowest tax amount, whereas Geneva and Neuchatel are amongst the highest:

Can you transfer your retirement savings into pension schemes abroad?

Transferring your retirement savings into a foreign pension scheme is possible in some cases. As it’s very dependent on the country you are moving to and whether the pension system allows for it, I can’t give you a blanket answer. Usually, withdrawing existing funds and buying into funds in your “new” country is the easier route. I would recommend speaking to a pension and insurance expert in your “new” country to discuss transfer possibilities. If you need help finding one, contact me. 

What happens if you move back to Switzerland in the future?

Moving back to Switzerland, even after having pulled some of your pension funds in the past, should not impact you negatively. However, I wouldn’t recommend withdrawing your funds and then moving back to Switzerland directly after, because you might cause suspicions around tax fraud (especially with 2nd pillar and the tax benefits for voluntary contributions). If you do this, I have a feeling you’re going to become very acquainted with the tax authorities and not in a fun way.