Retiring abroad: impact on pensions and investments

Retired at last! Having worked for several decades, most Swiss people look forward to taking well-deserved retirement. Their ideas and plans for this life stage are as diverse as they are themselves – and some of them choose not to spend their golden years in Switzerland.

One thing they all have in common, however, is that financial security makes their retirement more relaxed, comfortable and worry free, wherever they choose to spend it.

While most Swiss feel there’s no place like home, others toy with the idea of retiring to another country. But how can you have your pension paid out abroad and what other aspects do you need to be aware of?

In general, anyone who has lived in Switzerland, been gainfully employed and paid pension contributions can choose to have their pension paid abroad. To ensure the process goes smoothly, it’s important to inform all pension funds and insurers about the move in good time.

The Swiss franc is one of the strongest and most stable currencies in the world. It has tended to rise in value over the past two decades against key currencies such as the euro, pound sterling and the US dollar.

Which is why it’s a good thing that you are free to choose where you want your monthly pension payments from the first and second pillars to be transferred: to a Swiss account in Swiss francs or to a bank account in your new country of residence in the relevant local currency. If the latter is worth less than the Swiss franc, it’s advisable to change only the amount you need for your day-to-day living expenses.

When you choose your new place of residence, you should also familiarize yourself with the country’s applicable tax laws. Tax issues are not only relevant to the payout of your retirement capital and optimization of your investment strategy. Depending on the country, there are other tax-related factors to take into account that may differ considerably to those in Switzerland. These include, for example, different tax rates or how assets and capital are taxed, as well as inheritance law and inheritance taxes.

If you have already moved abroad when your retirement assets are paid out, you will be subject to tax at source rather than capital withdrawal tax in Switzerland. You can reclaim this tax (provided Switzerland has a double taxation agreement with the foreign country) if you have duly declared the payout abroad.

Before you decide whether to withdraw your retirement assets while you are still in Switzerland or once you have moved abroad, you should clarify with tax experts from both countries which option could be more advantageous for you.

A higher level of inflation means a greater loss of buying power – and this also applies to your retirement savings. Of the three pillars comprising the state pension, pension funds and private pension provision, only the state pension has to be adjusted for inflation by law.

In general, the Swiss Federal Council aligns ordinary pensions with wage and price trends every two years. If you draw your state pension abroad, your buying power will also depend on the rate of inflation there.

In the second pillar, the situation is different. Pension funds are free to decide whether to adjust pension levels for inflation or not. In recent years, only a very small number of pension funds have chosen to do so, which means that pensions lose their buying power when inflation rises.

Health is one of our most precious assets, especially as we age. Swiss health insurance comprises mandatory basic insurance and voluntary supplementary insurance.

If you emigrate to an EU or EFTA member state and receive a Swiss pension, you remain subject to health insurance in Switzerland. The same applies if you move to Great Britain or Northern Ireland.

Special agreements that exist with Germany, France, Italy and Austria, among others, give you the right to choose whether you want to be exempted from the insurance obligation in Switzerland.

However, this decision needs to be weighed up very carefully because it cannot be reversed. If you continue to remain insured in Switzerland, you will also have the option to receive elective procedures in Switzerland. For many people, this can be an important factor when reaching a decision.

In non-EU or non-EFTA countries, Swiss retirees can often join a local health insurance plan or take out private national or international insurance.

In 2023, 34 percent of all Swiss state pensions were paid out abroad. The recipients included many workers who returned to their home country after retirement; only 15 percent of those drawing a pension abroad have Swiss citizenship.

A total of around 813,000 Swiss people lived abroad in 2023, 23 percent of whom were aged 65 or over. There can be several reasons why people emigrate in retirement: the desire for a better climate, preference for a particular culture, social coexistence, closeness to friends and other family members or a better standard of living.

They emigrate both within the EU – with France, Germany and Italy being the most-popular destinations – and to the other side of the Atlantic, for example to the United States or Canada. However, many Swiss pension recipients are also drawn further afield to countries such as Thailand, Argentina and the Australian continent.

Source: Swiss Federal Statistical Office

There are several points to consider when planning your retirement abroad: it’s not just about choosing a place that’s nice to live in, where you feel at home or where you can be close to family and friends. You also need to look into what is the best way and time to draw your pension benefits from the first pillar and withdraw your retirement assets from the second and third pillars.

Remember to consider factors such as health insurance and taxation abroad as well. This is especially relevant if you are planning to retire to a country outside of Europe.