Retirement provision when abroad Retiring abroad: the impact on finances and investments

Living abroad means you have to deal with a different healthcare system and tax environment and other inflation risks than those in Switzerland. You may also be faced with currency risks. This should not put you off the idea of retiring abroad. However, you should familiarize yourself with the specific differences between Switzerland and your chosen country.

You should pay particular attention to your future financial management and investment strategy. Ideally you should consider this before moving abroad, keeping the country-specific differences and your own initial situation in mind.

As a rule, your income after retirement will come from three sources: the AHV, your pension fund and income from assets. The Swiss Federal Council reviews whether the AHV should be adjusted in line with changes in prices and salaries every two years, or more frequently in the event of high inflation. But what that means for you abroad depends on how prices and salaries change in your new home in comparison to Switzerland – the purchasing power of your AHV pension will increase or decrease as a result. Pension payments from pillar 2 are usually not adjusted for inflation. This means that inflation will definitely reduce the purchasing power of your pension.

With both pillar 1 and pillar 2, you can decide if you want your monthly payments made to a Swiss account in Swiss francs or an account in your country of residence in the local currency. If your income and expenses are in different currencies, you are exposed to currency risk. If the currency in your country of residence loses value compared to the franc, you would be better advised to only convert the amount needed for your living costs into that currency. UBS will be happy to advise you on the topic of currency risks.

Pension payouts, i.e., capital from the pension fund or pillar 3a are taxed at source in the canton where the pension institution is based if you are already resident abroad at the time of payment. You can either reclaim this tax or have it credited towards taxes due abroad. The prerequisite for this is that you live in a country which has concluded a double taxation agreement (DTA) with Switzerland and that this DTA provides for reimbursement or crediting. This is the case for most EU and EFTA member states. Consult the listClick here for official information on double taxation agreements. published by the State Secretariat for International Finance (SIF). 

If you are relying mainly on capital savings to cover your living costs, income from assets can also represent a currency risk. The risk can be reduced by converting part of your portfolio into investments held in your national currency. This strategy is recommended if you live in a country with a wide choice of investments with regard to risk spreading and diversification options. This can be difficult in emerging countries where it is best to keep your money invested in francs and other stable currencies like the dollar or euro. Generally speaking, spreading your investments among different currencies is a diversification strategy which reduces your risk. When optimizing your investment strategy, you should also consider which tax consequences the adjustments will have for you in your (new) country of residence.

Taxation is relevant not only when pension capital is paid out and when optimizing your investment strategy. Depending on your country of residence, there are additional taxation factors to consider, which may differ considerably from those in Switzerland. An unfavorable combination of income, income type, citizenship and country of residence can lead to unavoidable double taxation. However this should be the exception given that Switzerland has signed double taxation agreementsClick here for official information on double taxation agreements. (DTA) with over 100 countries in order to avoid precisely this. According to a statement by the State Secretariat for International Finance (SIF), Switzerland is striving to increase the number of DTAs.

But the tax situation can also be complicated when it comes to double taxation. Depending on your type of income, different tax rates may apply. There are also big differences in whether and how assets or capital gains are taxed. And last but not least, there are differences in inheritance laws and taxes. You are strongly advised to seek support and advice on your tax situation before you emigrate.

If you emigrate to a European Union country, the EFTA (the Principality of Liechtenstein, Iceland and Norway) or the United Kingdom of Great Britain and Northern Ireland (UK) and receive a pension from Switzerland, at first glance things look simple for you. You must take out basic insurance in Switzerland. But it’s worth taking a second look depending on the EU country: if you live in Germany, France, Italy, Austria or Spain, you and your family members who are not working have the option to avoid paying for Swiss health insurance by joining a healthcare insurance program in your country of residence.

However, this decision needs to be weighed up very carefully because it cannot be reversed. For example, whilst health insurance payments are lower in France, in Germany contributions depend on your income and are therefore expensive for the majority of Swiss people abroad. As in Switzerland, you can choose the health insurance provider with the lowest premiums each year from those which offer insurance for the EU, EFTA or UK. The premiums for each insurance provider and country are published every year by the Federal Office of Public Health (FOPH)Click here to see an overview of the FOPH's premiums for the EU, EFTA and UK. – the “with accident coverage” page being relevant for pensioners.

Your choice will not affect the quality of the healthcare you receive. There is one exception: if you continue to remain insured in Switzerland, you will also have the option to receive elective procedures in Switzerland. And there’s one more financial difference: those who are insured in Switzerland and who live abroad (in the EU, EFTA, UK) with a modest income can apply for reduced premiums.

Outside of the EU and EFTA, Swiss pensioners can often join a local health insurance system or take out private, national or international insurance. As in Switzerland, in many other countries it is also the case that not all the costs of treatment while on vacation are covered. Special international or travel insurance must be taken out instead.

As you can see, retiring abroad can impact how you manage your finances in a variety of ways. But if you’re prepared and obtain the necessary advice, you’ll be in a good position to meet the challenges.