BVG pension reforms: on June 1, new restrictions regarding the cashing out of company pensions came into effect. here, we look at how this agreement applies to you.

Switzerland and the EU signed seven bilateral treaties in 1999; one was an agreement on the free movement of people, which included reforms to the country's pension system.

The agreement covers the following insurance branches: old age, invalidity, survivor's benefits, illness and maternity, on-the-job accidents and occupational diseases, unemployment and family benefits. But, this agreement only covers the occupational benefits pension scheme's statutory minimum cover.

The agreement relates to Swiss and EU citizens who work in the EU or in Switzerland. Relocation of such people from Switzerland or the EU is also covered.

The bilateral agreement was extended to the ten new EU member states effective from April 1, 2006. Bulgaria and Romania joined the EU on January 1, 2007, but the agreement on the freedom of movement hasn't yet extended to those countries.

Cash payment upon departure

Let's take a look at how this affects cash withdrawal from an individual's company pension (BVG/2nd Pillar).

The most important impact of the EU law on occupational benefits concerns the restriction placed on cashing out your company pension when you leave the country. Under EU law, a refund of contributions when the compulsory insurance requirement ceases in a particular country is not permitted if the person moves to another EU country that also requires a compulsory insurance.

This restriction took effect on June 1, 2007, five years after the agreement was signed. It has also been adopted for EFTA countries. Cash payment of the occupational benefit pension savings is no longer possible on departure from Switzerland under the following conditions:

* Departure takes place after May 31, 2007, and

* the cash payment relates to the mandatory amount (statutory minimum benefits) that an employer and employee have paid into the pension fund, and

* the insured person moves to an EU or EFTA country, and

* the new country requires the person concerned to have compulsory state insurance for retirement, disability and survivors' benefits.

If the company pension of a particular person comprises of savings under both mandatory and non-mandatory schemes, only savings in the mandatory scheme can no longer be withdrawn. And, if any one of the above points is not satisfied, the entire savings can still be withdrawn on departure abroad. This means that EU and non-EU expats leaving Switzerland for a non-EU or non-EFTA country are still able to withdraw their entire company pension upon leaving.

If withdrawal is not possible, the savings will be retained in Switzerland on a blocked account (vested benefits account or vested benefits policy). On reaching ordinary retirement age--or no less than five years before it--the savings will be paid out to the person concerned. No transfer of the money from an occupational benefit pension scheme to the foreign social insurance scheme will be made.

Cash payment exceptions

A person who leaves Switzerland permanently after May 31, 2007 to settle in an EU or EFTA country and who seeks cash payment of his savings under a company pension scheme must prove that he is not required to have a compulsory pension, disability and survivors benefit insurance in the country he has moved to.

Persons who wish to draw their retirement benefits as a lump sum after ceasing employment at ordinary or early retirement age (stipulated in the pension fund regulations) are not affected.

Savings from company pensions that exceed the statutory minimum benefits are not affected either (referred to as non-compulsory 'credit balances').

The new provisions do not affect the possibility of early withdrawal for home ownership purposes. This applies even if the residential property is located in their EU or EFTA country of residence.

Examples

An American citizen permanently leaves Switzerland for Rome, where you must have a compulsory pension, disability and survivor's benefit insurance. Only the part of the vested benefits acquired in Switzerland that exceed the mandatory minimum will be paid out in cash. The mandatory pension savings will remain in a vested benefits account or policy. The new provisions apply, regardless of the nationality of the person concerned, because the relocation was to an EU country.

However, if a British citizen permanently leaves Switzerland to settle in the "third country" of Canada (i.e. a non-EU or EFTA country) he can receive full cash payment of his company pension acquired in Switzerland (minus applicable taxes).

Don't forget these changes are recent, and even pension fund companies are unsure of all the facets of the agreement. Therefore, don't be too hard on your human resources department if they cannot answer all your questions immediately.

Brien Donnellon is the owner of KEY INVESTMENT, a financial services company providing unbiased financial advice and solutions for Swiss-based expats, HR departments and foreign investors. The company, formed in 1997, is authorised and regulated by the Swiss Federal Banking Commission.

For further information please visit: www.keyinvestment.ch or write to [e-mail] or call [phone].