Transferring Swiss 3a retirement assets to 2a pension fund

I heard that it is possible to transfer money from a 3a retirement account to a 2a pension fund. How does that work?

Hi there,

If you are employed and part of an occupational pension fund, you can transfer part of your 3a assets to your pension fund in order to close gaps. Gaps are created when your salary increases, leaving a "gap" between the amount which you contribute to your 2a pension fund now and the amount you contributed in the past. You can close a gap by making additional, voluntary contributions until your average contribution matches the amount you currently contribute.

If the gap in your pension fund is equal to or greater than your total 3a retirement savings, you will have to transfer the full amount.

When you transfer 3a retirement savings to a 2a pension fund within 365 days of cashing them out, the withdrawn assets are not taxed. However, you cannot deduct this voluntary contribution from your taxable income.

Pros:

1. Assets held in pension funds may earn a higher interest rate than 3a retirement savings. This is not always the case, and will depend on your specific occupational pension fund.

2. You receive a lifelong pension based on your contributions, so closing gaps results in your getting a larger pension. If you live to a ripe old age, you may end up taking out much more than you put into your pension fund by getting a steady pension.

Cons:

1. You have less control over money held in a pension fund than money held in 3a assets. For example, 3a savings can be invested in a fund or life insurance policy for potentially higher returns. Assets in a pension fund are largely beyond your control because your employer chooses your pension fund and you are not at liberty to move to another pension fund of your choosing.

2. Cashing out a pension fund, when possible, must be performed in a single withdrawal. If you have a lot of money in your pension fund, you may be bumped into a high tax bracket when you withdraw it. On the other hand you are free to open multiple 3a savings accounts which you can close in sequence to avoid withdrawing too much in any one tax year.

3. The benefit of receiving a pension instead of a lump sum depends entirely on how long you live. If you do not expect to live long after retirement, the flexibility of one or more lump-sum payments may be the better choice.

In any case, it is important to determine how financially solid your pension fund is before you invest all or most of your assets into it. Diversifying your investments between several banks, insurance companies or investment funds in addition to your pension fund may be the more secure option.

Best regards from Moneyguru

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