Splitting vested benefits: an effective strategy to optimize your pension

The Swiss pension system is sometimes perceived as complex, but it offers interesting opportunities for better managing your financial future. One of these options is the splitting of vested benefits, which allows you to divide your assets into two separate accounts when leaving a pension fund. This approach can offer you greater flexibility, particularly for optimizing your taxes and better aligning your investments with your needs. Here’s how this strategy works and when it might be beneficial for you.

When to open a vested benefits account? 

There are several situations in which you may need to open a vested benefits account:

• End of employment: If you leave your job without immediately finding a new employer, your pension fund assets will be transferred to a vested benefits account.
• Starting self-employment: If you decide to pursue self-employment, you will no longer contribute to a pension fund. You must then transfer your assets to a vested benefits account, unless you opt for an early withdrawal of these assets.
• Expatriation: If you move abroad for an extended period, your pension assets may be transferred to a vested benefits account.
• Divorce: In the event of a divorce, part of the vested benefits may be transferred to a separate account for one of the spouses, according to Swiss legal regulations.

It is important to note that the splitting of assets can only be done when leaving the pension fund. It is not possible to split an existing vested benefits account. Furthermore, there is a legal deadline of six months to transfer your pension fund assets to vested benefits accounts.

What is the splitting of vested benefits?

Splitting involves dividing your vested benefits into two separate accounts with different foundations. This allows you to enjoy several advantages, both fiscally and financially, while increasing flexibility in managing your pension capital.

Why opt for splitting?

Splitting is a strategy with many benefits, especially regarding tax optimization and investment management. Here are some key points to consider:

• Tax optimization: As long as your assets remain in a vested benefits account, they are exempt from wealth tax, and the returns generated are not subject to income tax. Additionally, your assets are not included in AVS contributions for non-employed individuals. In Switzerland, pension withdrawals are taxed. Splitting allows you to stagger these withdrawals over two tax years, which can help smooth out your tax burden. For example, suppose you have CHF 400,000 in a single account. If you withdraw this amount in one year, you will be taxed at a higher rate than if you had split your assets into two accounts of CHF 200,000 each and withdrawn them over two fiscal years. This can significantly reduce the amount of tax owed. In some cases, splitting between the mandatory and supplementary parts of your assets may be wise, especially to better plan withdrawals according to your financial goals. Moreover, if your capital amount is substantial, an asymmetric split, with a smaller amount in one account and a larger amount in another, may also be relevant for better managing your assets.
• Increased flexibility: Splitting allows you to tailor your withdrawals to your needs. For example, you could withdraw part of your assets before retirement age to finance a specific project while allowing the other part to continue growing until you need those funds.
• Personalized approach: One of the advantages of splitting is the ability to choose investment strategies tailored to your goals and timeline. For instance, you could choose a more conservative strategy for the first account, intended for short-term withdrawal. For the second account, which will be withdrawn a few years later, you might opt for a more dynamic strategy to maximize growth potential.

How to proceed with splitting?

Implementing splitting requires a few simple steps:

• Choosing foundations: Selecting two vested benefits foundations is a key step. It’s important to compare their offerings, taking into account management fees, available investment options, and the foundation’s location. The canton where the foundation is located can impact the tax rate on capital in the case of withdrawal from certain foreign countries.
• Transferring assets: Once you have chosen the foundations, it is essential to organize the transfer of your assets within the given timeframe. We can support you at each step to facilitate this process.
• Planning withdrawals: With two separate accounts, you can plan your withdrawals optimally. We assist you in structuring withdrawals to align with your financial needs and tax goals.
  
  

Conclusion: a real planning tool

Splitting vested benefits is more than just dividing funds; it’s a true planning tool. Whether for tax optimization, adjusting investments, or better preparing for future withdrawals, this strategy offers valuable flexibility. With a personalized approach and timeline-aligned planning, splitting enables you to maximize your pension assets and confidently plan for your financial future.