Closing your vested benefits account: steps and tips for a smooth payout

Is your retirement approaching, are you planning to leave Switzerland, or are you taking the leap into self-employment? In such life situations, you may be wondering how to close your vested benefits account.

A vested benefits account safeguards your pension fund balance if you don't have a new employer with a pension plan. Once you're eligible to access your balance, the question arises as to whether and how to close this account and access your wealth.

In this article, you will learn what a vested benefits account is, the legal requirements under the Federal Law on Vested Benefits (FZG) for its closure, how the process works step by step, and the common mistakes to avoid.

What is a vested benefits account?

A vested benefits account is a second pillar account where your pension fund money is parked when you leave your previous pension fund without directly joining a new employer's pension plan. It serves as a temporary solution to ensure your pension capital remains protected and dedicated to retirement savings.

Typical situations for opening a vested benefits account include a career break, sabbatical, unemployment, or a career change. Once you join a new pension plan, the balance from the vested benefits account is transferred to the new pension institution, and the account is closed. However, if you remain without a pension plan until retirement, the balance stays in the vested benefits account until you can withdraw it.

The legal basics: when can you close your vested benefits account?

The possibility to withdraw your vested benefits balance is clearly regulated in the Federal Act on Vested Benefits in Occupational Old-Age, Survivors' and Invalidity Insurance (Vested Benefits Act, FZG). In principle, the capital remains locked until your official retirement. Early closure or withdrawal is only possible in specific exceptional cases provided by the law.

The main withdrawal reasons according to the FZG are:

• Ordinary retirement: Once you reach the regular retirement age (AHV reference age), you are entitled to your vested benefits capital. Early retirement up to five years before the retirement age is also possible.

• Starting self-employment: If you become self-employed as your main occupation and are no longer covered by compulsory occupational pension insurance, you may withdraw your balance as start-up capital. This must generally be done within one year of starting self-employment and requires confirmation from the AHV compensation office.

• Permanent move abroad: If you leave Switzerland permanently, you can generally close your vested benefits account. However, if you move to an EU/EFTA country, the withdrawal is limited to the non-mandatory portion if you are subject to compulsory social insurance (e.g. a pension fund) there. If you move to a country outside the EU/EFTA, you can usually withdraw the entire balance. (Exception: Principality of Liechtenstein – capital withdrawals are not allowed here.)

• Home ownership promotion (WEF): You may use your vested benefits balance to buy or build owner-occupied property. Repayment of a mortgage or investment in certain housing cooperatives is also permitted under home ownership promotion. However, withdrawals for holiday homes or second homes are not allowed.

• Small amount: If your vested benefits balance is very small (less than your own annual pension contribution), you can request the payment of this small amount.

• Total invalidity: If you receive a full disability pension (disability level ≥ 70%), you are entitled to withdraw your vested benefits capital. A legally binding decision from the Swiss Disability Insurance is required.

• Death: If the account holder dies, the balance is paid out to the entitled beneficiaries (e.g. spouse or children) according to the law.

In all other cases, the capital remains in the vested benefits account, and early withdrawal is not allowed. Without an exceptional rule, you can close your vested benefits account at the earliest five years before and at the latest when reaching the legal reference age of 65. Since the AHV reform "AHV 21", which came into effect on 1 January 2024, withdrawal after reaching the reference age can only be postponed if you are still working and earning AHV-contributory income. In this case, you can withdraw your vested benefits capital no later than at age 70.

Note: If, after changing jobs, you join a pension plan again, the vested benefits account is closed by transferring the balance to the new pension institution. The account is then closed without a cash payout.

Step-by-step guide: how to close your vested benefits account

If you want to close your vested benefits account, it is best to proceed as follows:

1. Check eligibility: Ensure that you meet one of the reasons listed above. Without a valid reason according to the FZG, no withdrawal from the vested benefits account can take place. Also, check whether you may have two vested benefits accounts to better plan your withdrawal.

2. Contact the vested benefits foundation: Contact the bank or vested benefits foundation where your account is held.

3. Submit withdrawal request: Carefully complete the official form for closing or withdrawing your vested benefits account. Indicate the reason for closing the account and where the money should be transferred. If you rejoin a pension plan, provide the details of the new pension institution so that the transfer can be made there.

4. Attach documents and evidence: Attach all necessary documents to the application. These generally include a copy of your ID (passport or ID card) as well as your current contact and bank details. Depending on the withdrawal reason, additional documents are required: for emigration, for example, a deregistration certificate from your municipality and documents about your new residence abroad, for self-employment, a confirmation from the AHV compensation office, and for home ownership, the purchase contract or a confirmation from the land registry office.

5. Payment and account closure: Submit the withdrawal request along with the documents (online or by post). After review, you will receive a confirmation. The vested benefits foundation will then transfer the balance according to your instructions. This officially closes your vested benefits account. Be sure to keep the closing documents (final statement, tax certificate, etc.) in a safe place.

Common mistakes when closing a vested benefits account and how to avoid them

When closing a vested benefits account, mistakes can occur that lead to delays or financial disadvantages. Here are some common mistakes and tips on how to avoid them:

Missing withdrawal reason

A common mistake is assuming you can withdraw the balance of your vested benefits account at any time. In reality, early withdrawals, as explained above, are only possible for legally defined reasons.

Incomplete documents

Incomplete applications delay the payout. Missing documents (e.g., no official ID, missing confirmations) lead to follow-up questions.
Solution: Use the provider’s checklists and submit all required documents. A call to the foundation can clarify, in case of doubt, which documents are needed.

Not considering tax implications

When you withdraw, your capital is taxed at a preferential rate, but the tax amount depends on the sum. A large lump-sum withdrawal is taxed more than smaller staggered withdrawals. Also, withdrawals from the 2nd and 3rd pillar are added together and taxed at a higher rate in the same year.
Solution: Consider splitting your balance across two vested benefits accounts to allow staggered withdrawals over multiple years.

Overlooking costs and fees

Many vested benefits accounts are fee-free, but fees may apply when closing or making an early withdrawal. For example, some institutions charge a processing fee if you close the account within a few months of opening or require a flat fee for property-related withdrawals.
Solution: Research any potential cancellation or closing fees in your provider’s terms and conditions. Compare different vested benefits foundations; switching may be beneficial if the services or fees are better elsewhere.

Spending the capital without a plan

After the withdrawal, you will have a larger sum of capital intended for your retirement savings. A mistake would be to spend this money recklessly or leave it in an interest-free account.
Solution: Create a financial plan for the released capital. Depending on your life situation, it may be wise to open a securities account and invest in safe assets, continue saving in the 3rd pillar, or seek professional investment advice in Switzerland. This way, you can ensure that your retirement funds continue to work optimally for you.

Conclusion: Receive your retirement capital thoughtfully for the next stage of life

Closing your vested benefits account should be well-prepared. Ensure you meet all legal requirements and follow the steps in an organised manner. Get informed early about the tax consequences and any fees to avoid unpleasant surprises. With careful planning and attention to the tips provided, you can receive your retirement capital smoothly and use it optimally for your future.