25 September 2025
by Eilidh Norman
Client Relationship Manager & Financial Planner
Not many of us are in our jobs for life these days. Most of us are likely to change employers at least once during our careers and for any number of reasons. At times of significant change, it’s very easy to forget about something like your employer pension but maybe it should be a bit higher on the list of things to pay attention to?
Have you ever wondered what happens to it when you change employers, your employment is terminated or perhaps you decide to take a career break? What if you have been away from work for a few years and have lost track of your Swiss pension altogether?
The below is a brief overview of the rules in Switzerland with a dive into the specifics of recent pension reform concerning the pension options available to the employee if they are terminated by the employer when nearing retirement (specifically after the age of 58).
Contributions to the 2nd pillar pension (occupational pension) fund are mandatory in Switzerland. For 2025, “mandatory” contributions are levied on salary between CHF 22,680 and CHF 90,720 with these thresholds expected to remain the same for 2026. “Extra-mandatory” contributions can be made above the upper contribution threshold but as the name implies, these contributions are voluntary. Employers will often offer additional pension plans or increased contributions to employees as part of their contract to increase their retirement benefits.
Usually, contributions are made directly to the employer’s chosen pension fund. Employer and employee contributions accumulate while the employee continues to work with the employer.
When employment ceases (resignation, termination, career break etc.), the funds must either be:
transferred to the new employer’s pension fund if the employee takes up a new job, or
transferred to a vested benefits (VB) account or policy (usually with a bank or an insurance company respectively) within 6 months of termination of employment if a new job is not taken up straight away.
The vested benefits remain locked away until retirement or the individual starts working for a new employer at which point the funds are transferred to the new employer’s pension fund.
At retirement, a VB account will generally pay out a lump sum capital payment (taxed at preferential capital tax rates) as opposed to a regular pension (taxable as regular income).
There are a limited number of situations where a pension or VB account can be accessed prior to retirement (in whole or in part) for example for the acquisition of a home, or when emigrating definitively from Switzerland (depending on the destination country) or becoming self-employed. Accessing the funds under these circumstances is considered an early withdrawal so, as should be expected, there are also likely to be tax implications.
It’s entirely possible to imagine a scenario where the employee forgets or omits to instruct a transfer of his pension pot from his employer’s pension to a VB account. If there are no other provisions within the previous employer’s pension fund to account for the funds in this situation then, after a certain period, the pension pot is automatically transferred to the Substitute Occupational Benefits Institution (SOBI).
SOBI is a Swiss national pension fund which acts as a 2nd pillar safety net for the Federal government. Lost pension fund assets can be located by searching or making an enquiry to the 2nd pillar central office
Mandatory pension contribution percentage rates in Switzerland increase as the employee ages. Currently, total contributions (employer + employer) start at 7% for employees aged between 25-34 and rise to 18% for employees in the 55-65 age bracket. This is without considering additional contributions that employers may have contractually offered their employees over and above the mandatory minimums.
Older, more experienced employees are commonly more highly remunerated. Combining this with increased contribution rates can lead to significant mandatory pension contributions for older employees. As a result, it can often cause them to simply become (too) expensive to retain for the employer. The unfortunate reality for these employees is that, just when the retirement goalposts are in sight, they can find themselves amongst the first in the firing line.
Individuals in the 55-65 age bracket (i.e. with the highest mandatory pension contribution rates) are approaching the current Swiss retirement age of 65. Individuals in this age bracket also have a limited number of years available to them to finish building retirement savings.
It can be hard to find new employment in this age bracket (especially with 2nd pillar coverage) despite the significant depth of knowledge and experience being offered because a prospective employer will be well aware of the increased employment costs involved. Add to this an overall lack of employment opportunities and this can lead to financial hardship into retirement.
Until fairly recently in Switzerland, an employee whose job was terminated by their employer was automatically excluded from their employer’s pension fund and obliged to transfer their pension pot to a VB account (as per the rules outlined earlier).
However, reform of the rules (effective 1 January 2021) provided the possibility for insured individuals over the age of 58, specifically those who have been terminated by their employer, to remain affiliated to their pension fund and voluntarily contribute to preserve their retirement security.
The following options are now available to these individuals:
Request voluntary contributions to the existing employer pension fund therefore maintaining retirement benefits coverage.
The individual must:
· be capable of working at the time of termination,
· usually notify the pension fund before the employment contract ends to continue as an external member of the pension fund,
· pay both the Ee and Er contributions (this can be expensive!)
This option may also be open to employees over 58 years old who resign from their jobs if the specific employer’s pension fund regulations allow it.
Transfer the pension fund to a VB account - the 2nd pillar assets will be managed in the VB account while the individual is not actively employed and not yet drawing a pension.
No further contributions can be made after the transfer and the performance of the assets tends to be limited as they are managed in compliance with Swiss pension regulations which require a conservative investment approach to maintain the level of pension assets.
As mentioned earlier, the VB foundation will normally pay a lump-sum payment on retirement (subject to a one-off capital tax at preferential rates) and not a regular retirement pension.
Move the VB account to a new employer’s pension fund when the individual finds new employment (if the new employer offers a pension plan).
Early retirement. If the individual does not want to transfer the funds to a VB account and the pension plan allows for early retirement at 58, then early retirement occurs. The individual can choose to draw pension as:
o A lump sum (subject to preferential capital tax rates)
o A monthly annuity (subject to income tax at individuals’ marginal rates)
o A combination of both
Opting for early retirement typically decreases the total funds available over the individual’s retirement years.
For Americans living and working in Switzerland there is the additional consideration of the impact each of the above options has on your individual US tax situation. Before making any decisions, ensure you talk with your tax advisors and look to a US financial planner to optimise your personal situation in relation to the 2nd pillar.
If you haven’t already, read and understand your employer’s pension plan. Be aware of any options available to you and any actions required by you under different circumstances including any relevant deadlines. You don’t want to exclude yourself from choices that may have otherwise been available to you just because you didn’t take action in good time.
Review your retirement provisions to ensure that you are on track with where you want to be in retirement.
If you are thinking of leaving / changing your employer:
o review your existing employer's pension plan before making any moves.
o find out about the new employer's pension plan and include it as part of your decision-making process.
o If you need help understanding the various implications of the move with regard to your pension, get some financial advice.
Always consider the US tax implications of any decisions before making any final decisions to optimise your situation. A previous WLIM series of articles looks into the US tax implications of the Swiss pensions system for American expats.
References: Article written in collaboration with Chat GPT and the use of cantonal authority websites.
At White Lighthouse Investment Management, we are both investment management and financial planning professionals. While we do not file tax returns on behalf of our clients, we maintain a close working relationship with many of our clients’ tax advisors and help our clients invest more efficiently. We strongly encourage our clients to maintain tax compliance in all jurisdictions they are required to, however we also encourage them not to pay any more tax than they legally have to. If you are a client of White Lighthouse reading this and would like to discuss the implications for your situation, please reach out to us. If you would like to inquire about working with White Lighthouse, please visit the Contact US page on our websites www.white-lighthouse.com (For US taxpayers resident anywhere in the world) or www.white-lighthouse.ch (for non-Americans in Switzerland).