Vested benefits account or policy: choosing between the two.
When your LPP assets land in a vested benefits foundation, you have two options: bank account or insurance policy. The right choice depends on your age, horizon, and risk-coverage needs.
You leave an employer. Your LPP assets have to go somewhere. If you have no new pension fund, they land in a vested benefits foundation. There, two products are possible: a bank account or an insurance policy. No one really explains the difference at that moment. That is the point of this article.
The distinction in one sentence
The account is a banking product: your money earns interest, full stop. The policy is an insurance product: your money earns interest and you also buy coverage (typically death and/or disability). More complete, but more expensive.
Side-by-side comparison
| Criterion | Account (bank) | Policy (insurer) |
|---|---|---|
| Legal nature | Banking contract (FZG art. 10) | Life insurance contract (FZG art. 10) |
| Yield | Variable interest rate (typical 0.1 to 1.2%) | Low guaranteed rate (often 0–0.5%) + profit sharing |
| Death coverage | None. Capital goes to heirs. | Guaranteed death capital, sometimes > current assets |
| Disability coverage | None | Disability pension possible if subscribed |
| Fees | Low (typical 0.1–0.4%) | High (insurance + admin fees, 1–2%+) |
| Securities investment | Possible (foundation offer, 0.5–1% fees) | Possible but rarer and opaque |
| Flexibility | Transfer or withdrawal at any legal moment | Possible penalties on early termination |
| Guarantee in case of bankruptcy | FZG privilege (assets segregated from bank balance sheet) | Life insurance reserve (ASA guarantee fund in case of rupture) |
When the account is the right choice
The account is the healthy default for the vast majority of situations. It is transparent, low cost, and does not lock you into coverage you did not request.
- You are under 50 and your retirement horizon is far. Cumulative policy fees weigh heavily over 20 to 30 years.
- You are in a short transition (between two jobs, sabbatical). No need to subscribe a policy for a few months.
- You already have risk coverage elsewhere: 3rd pillar 3a/3b with death capital, private life insurance, employer coverage still active during transition.
- You want to keep the option to invest in securities with controlled fees. Bank foundations offer ETF solutions with TERs around 0.5%, more transparent than a policy.
- Your goal is withdrawal in the short or medium term (departure, home purchase, self-employment). A policy locks or penalizes more.
When a policy may make sense
Rarer. The policy makes sense in specific situations:
- You are the sole breadwinner and have no other death coverage. The policy fills the risk that your 2nd pillar disappears at your death if you are not married, or if your fund has no partner pension.
- You are in a long transition (several years out of work) and the disability coverage of your former fund expires.
- You have a health profile that would make a private insurance subscription difficult later. The vested benefits policy can be subscribed without a health questionnaire with some insurers.
A worked example
LPP assets of CHF 95,000 to transfer for 24 months before the new position. Married, partner with stable employment, already covered in 3a.
- Assets to place
- CHF 95,000
- Expected duration
- 24 months
- Risk profile
- Very low (covered elsewhere)
- Account — 2-year estimated fees
- CHF 240 ~0.12% per year, without securities investment
- Policy — 2-year estimated fees
- CHF 1,800 ~0.9% per year + insurance fees
- Difference
- CHF 1,560 in favor of the account, with no loss of coverage
How to switch from a policy to an account (or vice versa)
The transfer is legal and possible at any time. The procedure:
- Open an account (or subscribe a policy) at the new target foundation.
- Ask the former foundation for a vested benefits transfer, indicating the IBAN of the new one.
- The former foundation processes the transfer within 30 days in general.
- Check that the transferred amount matches your vested benefits as shown on the last statement.
Watch out: policies may carry early-termination penalties — especially in the first years. Ask for the surrender value before any transfer. If it is lower than the premiums paid, wait a few years or weigh the gap.
The double-holding trap
The law limits you to two vested benefits accounts per beneficiary. But in practice, many people have more, by changing their mind or forgetting a former account. If you suspect you have forgotten an account, this is exactly the service provided by the Central 2nd-Pillar Office, complemented by Pillarum querying the private foundations.
- 01The account is the healthy default: transparent, low cost, flexible.
- 02The policy adds risk coverage (death, disability) — useful if you have none other, otherwise it costs a lot for nothing.
- 03The cumulative fees are the real difference over 10–20 years: one fee point more = tens of thousands of francs less at retirement.
- 04An account ↔ policy transfer is always possible — just check policy termination penalties.
To dig into the hidden fees of vested benefits foundations, see our fee comparison. And if you want an overview of vested benefits in general, return to our vested benefits guide.