Pension fund What you need to consider when changing jobs

A new job also means switching to a new pension fund. Examine the new pension fund very carefully.

by UBS Insights 31 Aug 2021
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Changing jobs is exciting: the professional challenge, new colleagues and a new environment. In all the excitement, don’t forget your pension fund (PF). Changing jobs requires you to transfer your vested benefits from the old PF to the new one.

Consider the conversion rate and funding ratio

If the termination benefits from your former PF are less than is necessary for benefit coverage at the new fund, you can buy into the new PF. However, if the benefits paid by the new fund are lower, the surplus must be transferred to a vested benefits institution to ensure that your total retirement assets are preserved. The surplus remains there until you retire or switch to a job with a better performing pension fund.

Check the PF regulations

If you are over 50 when you change jobs, you should request a copy of the PF regulations and a provisional pension certificate before you sign your new employment contract. Look closely at the retirement benefits. Even if the salary is higher, the PF benefits may not be that good. You should also take a look at the benefits paid out in the event of death or disability.

Self-employed individuals have two options

If you terminate your employment to start your own business, any capital you have saved in pillar 2 will be transferred to a vested benefits account. You can use both these assets and those in pillar 3a as starting capital to set up a partnership, though not to establish an AG or limited company, as you would still be considered to be employed.

You still need to make AHV contributions if you are self-employed. You can also join a pension fund voluntarily and pay into it regularly. Additional purchases are also a way to close any gaps that have arisen since you became self-employed. They also reduce the portion of your income on which AHV contributions are compulsory, thus decreasing the amount you contribute in a given year. If you do not belong to a pension fund but invest in pillar 3a, you may pay in up to 20 percent of your income each year up to a maximum of CHF 34,416. This is instead of the usual limit of CHF 6,883 (as of 2021). Pension fund contributions and payments into pillar 3a both offer tax benefits.

Fact sheets for every retirement planning situation

Would you like to learn more about pension fund purchases and retirement planning for the self-employed? Or would you simply like to better understand your pension fund statement? UBS has created free fact sheets which address these and other retirement planning topics.

It’s a good idea to bridge pension gaps

Extended training and further education courses, periods abroad, time off, and maternity and paternity leave can all lead to gaps in your pension fund and thus a lower pension. Even pay raises can contribute to gaps. Voluntary purchases even these out and increase your pension. What’s more, any purchases you make in a given tax year are deducted from your taxable income. This is especially advantageous for older employees and those on higher incomes.

Your annual pension fund statement will tell you whether you have a pension gap. Before making a purchase, check whether the pension fund is “healthy” and how much interest is paid on purchases. A fund is considered healthy if it has a coverage ratio of 100 percent or more. Figures of 115 percent indicate a sound pension fund.

Plus: common-law partnerships and early retirement

People in common-law partnerships should check whether the new PF pays out a pension to their partner in the event of their death and what conditions may apply. Find out about early retirement and prevent benefit reductions by making PF purchases. Many institutions allow purchases until shortly before retirement. However, should you opt for a lump sum withdrawal from your pension fund, you must conclude the purchase process at least three years before retirement.

What you should know

Pension certificate: everyone insured by a pension fund receives an annual pension certificate or pension fund statement. It contains important information about your personal pension situation.

Reported AHV annual salary: this refers to the gross salary shown on your annual salary certificate from your employer.

Insured annual salary: the coordination amount is deducted from your AHV annual salary. This is the portion of your salary already insured in pillar 1 (AHV/IV) and should not be insured a second time. The coordination amount is CHF 25,095 according to the BVG (as of 2021). Individual pension funds can also stipulate lower coordination amounts.

Maximum possible purchase: if you earned less in previous years, you can increase your pension fund savings with a tax-exempt voluntary purchase.