Finances in Switzerland: Top Five Things Expats Need to Know
The Swiss pension system can seem quite overwhelming, especially to newly-arrived expats. Without going into too much detail, the Swiss pension system has three pillars, the social, the professional and the private pillar. The first one is the social pillar, designed to provide basic living expenses to retirees and disabled people. Pillar two is designed to maintain a basic standard of life and is made up of contributions made by you and your employer. Finally, pillar three is designed to maintain a comfortable lifestyle. Contributions to the third pillar are voluntary but necessary, since pillar one and two will only be enough to survive in retirement. If you want more than that, then you need to contribute to the voluntary pension fund in pillar three. With the following five tips, you will get the most out of your Swiss pension.
Changes to Pension Payments
At present, if you retire in Switzerland you can choose to take your money out in a lump sum. However, this may be changing soon. The problem is that people are taking out their pensions in lump sums, living the good life and then asking for social benefits because all of their pension is gone.
The plan is to only allow monthly payments at a rate determined by the Canton that will insure that the person in retirement still has enough money at their disposal. What happens if you pass away before all of your pension money is gone? Like every pension, this depends on the terms of the pension and which next of kin you have (spouse, children, grandchildren, etc.). Some pensions can be transferred to your family, some only pay out 50% to your wife and the rest to the pension company, while others keep all the money and do not distribute any to your next of kin.
With this information, you can better prepare yourself for retirement. For example, if you are self-employed, you should be proactive in finding second pillar alternatives that will allow lump sum payouts. On the other hand, you can begin contributing to a pillar three which will not be subject to the same restrictions as pillar two since contributions are voluntary.
Get Your Swiss Pension Even If You Live in Another Country
In any case, money that you contribute to pillar one goes to retirees and disabled people at the moment. There isn’t a pot of money waiting for you. However, be aware that you can still get your pillar one in retirement even if you no longer live in Switzerland. You just need to file your claim three years before your retirement age. When you leave the country, order a pillar one statement as a reminder for yourself in the future. Switzerland will pay out the money you contributed towards the Swiss pensions fund, no matter where you are.
Taking Out Your Second Pillar
First of all, if you have been in Switzerland for a long period of time and have worked in multiple places then you should probably contact the Second Pillar Central. This is an organization that tracks down second pillars that may not have been claimed by employers. And their services are free. I, myself, went through this process and found that I had two second pillars that were not claimed and needed to be moved.
To further clarify, in Switzerland, your second pillar pension should be moved from employer to employer. So, when you have a new employer, they need to contact your old company about your pension and it should be transferred from your previous employer’s pension scheme to your new employer’s pension scheme. Sometimes this is not done — though it is mandatory — and your employer just starts contributing to their pension scheme for you without claiming (or retrieving) your previous one. When this happens, your pension is then left in a Vested Benefits account where it sits unclaimed.
In any case, you can take out your second pillar to buy a home, start a business, or in the event of disability, retirement, and if you leave the country. If you leave Switzerland but remain in the EU then you are only permitted to take the extra-mandatory portion unless you are buying a home to live in. If you are leaving the EU then you can take out the entire second pillar.
Saving in Switzerland
Everyone in Switzerland should have a 3A, a tax deductible savings or pension, whether it is provided by a bank or an insurance company. Here is a rule of thumb, if you are planning on only staying in Switzerland for a few years, then get a bank 3A because it requires no commitment. It also has no growth but in this case, all you want is to get your tax back. If you are planning on staying for longer, especially if you have a family and/or children, then the insurance is the better option for you. It has much higher growth (Bank 3A: 0.25%, Insurance 3A: 3.5%–7%) and it comes with benefits such as disability coverage and/or life insurance. However, this insurance does require a lot more commitment.
You Can File a Tax Return
If you are a B or L permit holder and taxed at source, you can still file for a tax return and receive some of your money back. Fortunately, the Swiss Tax System is actually quite friendly and accommodating to expats. In fact, many city halls have websites with the forms you need and information about what you are able to deduct. It may make sense to contact a tax consultant for special situations and questions but, in most cases, taxes are straight-forward in Switzerland. So be sure to file your taxes!