#69 How well are my retirement savings protected if a bank goes bankrupt?

In Switzerland, there has never been a bankruptcy in pillar 3a or in the context of vested benefits (pillar 2). Even for pension funds (occupational pension plans), a partial liquidation has been the absolute worst-case scenario to date. It is therefore highly unlikely that a pension fund would become insolvent. While a pension fund or a provider of a vested benefits account is a legally independent foundation, its assets are also held at a bank. This theoretically poses a risk. Legally speaking, pension assets initially constitute a claim against the pension fund – a so-called pension entitlement.

Securities as protected special assets

There is good news for anyone who has invested their pension capital in securities or funds. Just as with personal assets, securities are treated as so-called special assets within the pension foundation. Should the custodian bank go bankrupt, these assets do not become part of the bank’s bankruptcy estate. They always belong to the customer, are fully protected by law and are not directly affected by a potential bank failure.

Special rules for cash in pension accounts

The situation is significantly different when pension funds are not invested. Unlike personal assets, deposits in a 3a or vested benefits account are not protected by the Swiss deposit guarantee scheme Esisuisse. In the event of bankruptcy, however, pension savers are by no means left empty-handed, as the law provides for preferential treatment of up to 100'000 Swiss francs per customer.

To understand what this means in practice, it helps to look at the process of a bank bankruptcy. If this emergency occurs, the Swiss Financial Market Supervisory Authority (FINMA) appoints a liquidator. The liquidator’s task is to draw up a so-called collocation plan in accordance with the rules of Swiss bankruptcy law. This plan strictly regulates the order in which the various creditors are paid from the bank’s remaining funds.

The system is divided into different bankruptcy classes. The first class includes the claims of bank employees – thus, outstanding wages and social security contributions are paid first from the liquidation proceeds. Immediately after that, in the second bankruptcy class and thus ahead of all other creditors, pension savers are next in line. This bankruptcy privilege applies to the first 100'000 Swiss francs per customer and per pension foundation. You yourself could therefore be entitled to a privileged claim of several hundred thousand francs.

Combining returns and security

Although the bankruptcy privilege offers solid basic protection for cash holdings, it is better to invest in securities. On the one hand, you have significantly better long-term return prospects. On the other hand, you don’t have to worry about bank failures.

Do you have large cash holdings in your 3a or vested benefits accounts that are causing you concern? Send me an email.