Since the beginning of the year, members of BVG/LPP pension plans can reduce their working hours before reaching normal retirement age or they can continue working beyond the normal retirement age. Flexible retirement presupposes good personal financial planning.

In 2010, 2.9% of Switzerland's active population continued to work after the age of 65. The number was 3.2% for men and 2.5% for women. Senior citizens may now continue contributing to their pension plan until they reach the age of 70.

Graduated 2nd pillar retirement is now possible

In the 55 to 64 age bracket, nearly 15% continued working: 15.5% for the men and 13.9% for women. By comparison, 82.3% of the under 55s continue to work. That shows that early retirement is widespread in this country. Employees who want to reduce their degree of employment when they reach age 58 may continue paying the full contribution, based on their last salary, into their pension plan provided their salary is reduced by no more than one-half. Active members can thus go into retirement gradually, in several stages, between the age of 58 and the age 70.

Vested benefit solutions are increasingly attractive

Meanwhile, the Law on Vesting in Pension Plans has also been amended. At retirement, employees are no longer obliged to take their retirement benefits in the form of an annuity, they now have the choice between a pension and a lump-sum termination benefit.  The termination benefit may be paid to the pension fund of their new employer or to an account with a vested benefit institution. Moreover, since the earnings on vested benefit accounts are not taxed as income and the assets on the account are not subject to capital tax, vested benefit accounts are even more attractive. However, vested benefit accounts may not be paid out as a pension, but only in the form of lump-sum capital.

The first pillar is lagging behind

Despite these revisions, people looking to take early retirement should expect to receive reduced benefits. They lose the corresponding years of 1st pillar benefits but have to continue paying AHV/AVS contributions until the normal retirement age. The excess, which normally applies to gainfully-employed pensioners, is not paid to persons receiving an AHV/AVS early retirement pension. The law imposes narrow limits: AHV/AVS pensions can be drawn no sooner than two years before the normal retirement age. In Switzerland, the normal retirement age is 64 for women and 65 for men. Each year of early retirement reduces pension entitlements by 6.8%. On the other hand, a pension can be deferred by no less than one and no more than five years. A deferral has the effect of increasing the relevant pension by a monthly increment. The increment depends on the duration of the deferral and is set as a percentage of the average deferred pension. After five years of deferral, the increment equals 31.5%.

Closing income gaps with the 3rd pillar

A person's standard of living after early retirement depends primarily on his personal savings. That is why early retirement needs to be carefully considered and well planned. To close any income gaps, individual pillar 3a accounts can be set up with staggered maturities. Retirement savings in tied 3a solutions can only be paid out five years before the account-holder reaches the normal retirement age. You should avoid cashing in the entire savings capital in a single amount. Ideally, you should cash in one pillar 3a savings account per year to minimise progressive taxation. That presupposes, however, that retirement savings are distributed over several accounts from the outset.