Withdrawing Swiss pension fund when self employed

I heard that it is possible to withdraw pension fund money when you become self employed. How should I go about this?

Hi there,

The first step is to register yourself as self-employed with your local social security office. To do this, you will normally need to present contracts with clients, business property rental contracts and/or other proof that you meet requirements.

Important: The self-employed status does not apply if you found an AG or GmbH. When you do, you become an employee of your own company, and are still required to save through a pension fund.

Once the social security office has confirmed your self-employment status, you can request delivery of your pillar 2 pension savings by providing a copy of the confirmation to your pension fund.

Best regards from Moneyguru

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Hi, do you know how is the 2 pillar withdrawal taxed when taken out as self-employed?

The capital withdrawal tax for retirement assets (Kapitalauszahlungssteuer) applies. This is the same tax you pay on standard lump-sum withdrawals from your pension fund or vested benefits at retirement age.

Capital withdrawal tax is levied at the federal and cantonal levels. The federal capital withdrawal tax is equal to 1/5 of your applicable federal income tax rate. Cantonal capital withdrawal taxes vary between cantons, and are generally higher than the federal tax (1/3 of your applicable cantonal income tax rate, for example).

The capital withdrawal tax is always identical regardless of the reason for withdrawing your benefits.

Thank you. So there is no "tax penalty" for withdrawing the 2 pillar retirement assets before the retirement age? 

No. The capital withdrawal tax is identical regardless of when you withdraw vested benefits. The only factors which play a role in determining the tax are: where in Switzerland you live; your income.

The same capital withdrawal tax also applies to withdrawals from both vested benefits foundations and occupational pension funds.

Thank you.

I have found an information that there is a 3 years "freeze" of withdrawals of "additional contributions for missing years". Does that mean that after 3 years those additional contributions are also taxed identically as if they were withdrawn during retirement?

Yes. The exact same capital withdrawal tax applies to both mandatory and voluntary benefits. The only difference is when you are allowed to withdraw the money.

When you make extra, voluntary deposits into your pension fund to fill up the gaps, the benefits from those voluntary payments can only be withdrawn after 3 years. On your annual pension fund statement, there should be two different figures for the benefits you are entitled to: One is the total of all benefits in your pension plan, and the other is the amount which you are entitled to withdraw early at that point in time (total benefits minus those locked in the 3-year waiting period).

Thank you for a detailed answer. I appreciate it a lot!

Is there any rational reason for not withdrawing the 2 pillar funds when possible and investing them privately that I might not be aware of?

I am asking because it looks like a great opportunity to me to be able to invest those funds myself instead of keeping them in the social security system at a very low interest. What are the reasons you (or other people) could choose to keep those funds in the social security system instead of investing?

Pillar 2 benefits do not count as taxable wealth until you withdraw them. If your wealth and canton of residence make wealth tax a concern, then you should calculate how withdrawing your wealth from your pension fund will impact your wealth tax liability over the long term.

If you would pay little or no wealth tax even after withdrawing, then there is no good reason I can think of not to withdraw your benefits.

There are other possible reasons which apply to people who are leaving Switzerland (e.g. tax benefits in other countries, keeping money in Switzerland without paying high extra banking charges, holding Swiss francs, etc.). But that's another story.