Gradual retirement – how to make it work

How it works

The principle behind gradual retirement (semi-retirement) is fairly simple – you gradually reduce your working hours and at the same time withdraw some of your old-age savings from the 2nd pillar to compensate for your lower salary. You can withdraw the money as a pension or as a lump sum. A maximum of three semi-retirement steps are allowed, with the last step coinciding with the end of gainful employment.

Example: at the age of 58, you reduce your working hours from 100 to 70 per cent and withdraw 30 per cent of your pension fund. Three years later, you reduce your working hours to 50 per cent and withdraw a further 20 per cent of your pension fund. You withdraw the remaining 50 per cent of your pension fund when you take regular retirement.

Advantages: you continue to pay into your pension fund – to the extent your reduced salary permits – and thus boost your retirement savings. You also remain insured against death and disability through the pension fund. As a part-time employee, you continue to pay OASI contributions and thus avoid any OASI gaps.

Disadvantages: the lower contributions to your pension fund mean that you build up less retirement savings. In addition, the conversion rate, which determines the amount of your pension, is lower for the portion withdrawn in advance.

From what age onwards can you do this?

That depends on your pension fund. Many pension funds allow gradual retirement from the age of 58 onwards.

Incidentally, if you want to continue working part-time after reaching the regular retirement age, you can extend your gradual retirement until you turn 70.

Preparation

• Ask your employer whether they would allow semi-retirement.

• Check the age from which your pension fund allows semi-retirement.

• Take stock of your finances – income, outgoings, assets, debts (incl. mortgage), healthcare and insurance. Draw up a budget plan for the period after your intended reduction in working hours.

• Check whether the retirement benefits you expect to receive would allow you to maintain your standard of living.

Cantonal particularities

The parameters for gradual retirement vary depending on where you live. This is due to the requirements of the cantonal tax authorities, on which the respective regulations of the pension funds are based:

• Depending on the canton, you must reduce your working hours and your salary by at least 20 to 30 per cent per retirement step – permanently. The amount you receive from your pension fund is linked to your reduced working hours – if you reduce your working hours by 30 per cent, you must withdraw 30 per cent of your pension pot.

• Depending on the canton, you must be working at least 20 to 30 per cent of the time before you finally retire.

Lump sum instead of pension?

As an alternative to a monthly pension, you can also withdraw your retirement savings from your pension fund as a lump sum; however, the same parameters do not apply everywhere:

• Some cantons allow a maximum of two lump-sum withdrawals from the pension fund, while other cantons allow a maximum of three. And any such withdrawals must be at least twelve months apart.

• You often have to withdraw the last part of your retirement savings as a pension.

Advantages: if you withdraw your pension capital in two or three parts, the tax you pay will be significantly lower than if you withdraw your retirement savings all at once. That’s because most cantons tax larger capital withdrawals at a proportionally higher rate than smaller ones. If, on the other hand, you receive the benefits from the pension fund in the form of a pension, you will increase your taxable income for life – so you will pay correspondingly more tax.

What about OASI?

Normally, the OASI pension is only paid out once you have reached the regular retirement age; however, you can bring it forward by a maximum of two years.

Disadvantages: taking your OASI pension early results in a lifelong reduction in the assets – currently 6.8 per cent per year of early withdrawal. You must also continue to pay OASI contributions.

What about pillar 3a?

You can withdraw the capital saved in pillar 3a at the earliest five years before reaching the regular retirement age. As with the benefits from the pension fund, it makes sense to withdraw the assets gradually so that you pay less tax. To do this, the assets must be spread over several pillar 3a accounts, as partial payouts from one 3a account are not possible.

Tip: you should open another 3a account once you have saved around CHF 50,000.

What you should do early on

• Plug any pension gaps by buying into the pension fund.

• Avoid gaps in your OASI contributions by paying the missing contributions on time.

• Build up additional old-age savings and invest some of them in shares, bonds or other investments.

• If possible, pay the maximum annual amount into pillar 3a.