The BVG auxiliary fund foundation (auxiliary fund) manages pension assets in excess of CHF 12 billion. Of this more than CHF 10 billion is in vested benefits accounts. This is more than half of all accounts, and 20 percent of all vested benefits assets in Switzerland.
Auxiliary fund: pension fund and vested benefits foundation at the same time.
The auxiliary fund is both a pension plan and a vested benefits foundation. As a pension plan, the auxiliary fund was managing some 2 billion in 2016 and was insuring around 36,000 persons: employees, the self-employed and businesses that cannot find a provider for their occupational retirement provision. However, most of the money is held by the vested benefits foundation. It has more than one million vested benefits accounts with retirement assets of CHF 10 billion.
Why are so many vested benefits accounts held with the auxiliary fund?
When employees leave a company, they leave its pension plan. They now have an obligation to take the money saved so far – their vested benefits – along with them to the next pension plan. This is usually the pension plan of the new employer or, in the case of a break (such as a sabbatical), a vested benefits foundation. In order for this to happen, employees must notify their former pension plan accordingly. If employees fail to do this or are no longer traceable, the money is transferred to the auxiliary fund – at the latest two years after the employee has left the company. The vested benefits are held there until the account holder contacts the auxiliary fund. However, there are always cases where this does not happen. This is why the auxiliary fund manages many accounts where the account holder has moved without leaving a forwarding address and cannot be found. This is the case with some 650,000 accounts. If the account holder does not get in touch by the time of retirement, the address is compared with that held by the AHV in cooperation with the security fund, once the account holder has reached retirement age. In this way much of the money can be returned to its owners.
Who lets their vested benefits assets go to waste?
Actually, it is rather strange that someone can lose sight of the pension fund assets they have saved under pillar 2. What kind of people are these? This is a question to which the auxiliary fund can give no conclusive answer, since in most cases it receives information through the employer when it accepts the assets of a former employee from the employer's pension plan. However, the amounts are relatively small. From this it can be concluded that people who frequently change jobs tend to be more affected by this. At the same time, people who often change domiciles have a greater risk of losing permanent contact. So it is all the more important to inform your own pension plan of your new address if you move your home.
Retirement assets influence benefits from the occupational retirement provision
People who change jobs should make a point of ensuring that the pension fund or collective foundation which they are leaving transfers their vested benefits to the new employer's pension plan. For the retirement assets that have already been saved influence benefits from the occupational retirement provision – the more capital has been accumulated, the better the retirement benefits. Only recently, someone complained to the Vita Collective Foundation that the risk premium for their partner pension from occupational retirement provision was too high. Under the previous pension plan, this person allegedly had to pay only half the amount for the same benefits. The real reason for the high costs was that the vested benefits under the previous pension plan had never been transferred to Vita. Under some pension plans, the lack of retirement assets influences the risk costs considerably, because the risk benefits are calculated on the basis of the retirement assets that already exist. The less capital accumulated, the greater the difference from the guaranteed risk benefits and the higher the premium that has to be paid for risk protection. These facts led the customer to discover that his vested benefits were being managed by the auxiliary fund. After he had them transferred to the Vita Collective Foundation, the risk premiums were recalculated and the customer has been more than satisfied since then.
The contactless account: is it right for you?
In principle, anyone who has ever changed jobs or done an internship, during their education, for example, can find themselves with their vested benefits account parked with the auxiliary fund or another vested benefits institution. If you are uncertain whether all your pension fund money has been correctly transferred, you can search for your retirement assets. To do so you can send a written request to the pillar 2 central office.
Where do your vested benefits go if they do not go to your new employer?
Those who have become unemployed, are taking some time off or who have become self-employed should immediately inform their former pension plan where their pension funds' assets should be transferred. And this new place should be carefully selected, because amounts as high as several hundred thousand Swiss francs are often involved, which are to be parked for many years. So it is worthwhile thinking about this issue – so that the retirement assets you have saved generate the highest possible returns.
Vested benefits account with a bank or an insurance company
What options do you have? You can pay your retirement assets into any vested benefits account with a bank, for example: this would be a savings account with preferential interest rates. If you wish to leave the vested benefits capital untouched for more than ten years until the time you reach retirement, an investment in funds would also be conceivable. Experience has shown, namely, that in the long term this generates better returns than leaving the money in an account. But when investing in funds you also take risks. So it is recommendable to seek advice on various investment strategies.
No pensions from a vested benefits account and a vested benefits policy
However, the vested benefits account (with a bank foundation) and the vested benefits policy (with an insurance company) do not offer the option of drawing a pension when you reach retirement age. You must withdraw the capital and apportion it yourself, or agree on a payment plan with an insurance company or bank. The same applies to saving for retirement. Further purchases into or deposits in a vested benefits account are not possible. If you want to continue saving for retirement without affiliation to a pension plan, this must be done under an unrestricted pension plan or under pillar 3. A further option is voluntary saving with the auxiliary fund. However, contributions to pillar 3 are only possible if you are paid a wage or salary subject to AHV deductions, meaning that you have to have a job or be self-employed.
Vested benefits account with the auxiliary fund
If you do not have an employer and do not want to keep your capital with a bank or an insurance company, you can also open a vested benefits account with the auxiliary fund. The account is managed free of charge. However, you cannot reckon with high interest income with this pension planning solution – as is currently the case with most vested benefits solutions. With the auxiliary fund, you also have the option of continuing with the mandatory occupational retirement provision. You can continue to save for retirement and also insure the risks of disability and death. Since you do not have an employer, however, you pay all contributions yourself.
Important: If you start a new job after an interruption, you have to contribute all existing vested benefits to the pension plan of your new employer. Only if your capital exceeds the full benefits provided for by the regulations can the surplus remain in a vested benefits account.