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Retirement Plan: Who Plans Ahead Gets More Out of Their Retirement

1.9.2022
  1. Three pillars for your retirement provision
  2. When can you retire?
  3. BVG: Capital or pension?
  4. BVG: Advantages of retirement
  5. BVG: Benefits of capital withdrawal
  6. Variant 1: Early retirement
  7. How much does early retirement cost?
  8. Variant 2: Partial retirement
  9. Variant 3: Deferred retirement
  10. How to close income gaps
  11. Retirement plan: good advice is valuable
  12. Checklist: Retirement plan documents

Most people look forward to retirement: more time for the family, long neglected hobbies, doing nothing, studying at a university for senior citizens or the oft-postponed world trip. Retirement brings with it new freedoms, but also a question mark or two. That is why it must be well prepared. Especially from a financial point of view. The earlier you deal with it, the better. Especially do you want to take partial retirement or even early retirement. Experts advise to start planning for retirement five years before retirement.

Three pillars for your retirement provision

Old age provision in Switzerland is based on three pillars:

  1. The 1st pillar is the state pension system (AHV and IV), which aims to guarantee subsistence.
  2. The 2nd pillar is the occupational pension plan (BVG), which aims to guarantee an adequate standard of living.
  3. The 3rd pillar is private pension provision, which aims to supplement the 1st and 2nd pillars.

Pillars 1 and 2 are compulsory and cover about 60 per cent of the last salary of employees insured in Pillar 1 who earn more than the BVG minimum annual salary, currently CHF 21,510. The missing plus/minus 40 per cent should be financed by the voluntary Pillar 3 or by other means. Those who earn less than CHF 21,510 (entry threshold) are not compulsorily insured under the 2nd pillar. Those who work part-time for more than one company and earn a total of more than the BVG annual salary can take out voluntary insurance, usually in the supplementary institution.

Houzy Advice

Good to know

Individuals receive between CHF 14,340 and CHF 28,680 and married couples between CHF 28,680 and CHF 43,020 from the AHV. The basis for the maximum pension is an average earned income of CHF 85,320. One eighth of pension recipients depend on supplementary benefits.

When can you retire?

The normal retirement age (AHV) and pension age (BVG) is 64 for women and 65 for men. It is possible to draw your AHV pension one or two years earlier, i.e. women at 62 or 63 and men at 63 or 64. It is possible to draw a BVG pension no earlier than 58. For this, both pensions are reduced (see 'Variant 1: early retirement' and 'Variant 2: partial retirement').

BVG: Capital or pension?

AHV benefits are paid monthly in the form of an annuity. BVG benefits can be received once as a lump sum, monthly as a pension or in a mixed form. The choice of a pension lump sum, a pension or a mixed form depends on many factors and your need for security. It is often worthwhile to draw part as an annuity and part as a lump sum. The most suitable variant for you is a central point of pension planning.

Houzy Advice

Good to know

Information on pension benefits from the pension institution in the event of death, disability and old age is given in the pension certificate.

Houzy Hint

Tip

Inform your pension fund in good time if you want to withdraw all or part of your retirement capital. Depending on the pension regulations, the request can be made up to three years before retirement.

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BVG: Advantages of retirement

  • Safe: You receive a pension for life and your spouse remains insured with you.
  • Profitable: The pension fund annuity is usually higher than the annuity of private pension contracts that you could take out with your retirement capital.
  • Carefree: You will not have to worry about managing the assets from the one-off withdrawal and you will not take any investment risk.

BVG: Benefits of capital withdrawal

  • Flexible: You can use part of the capital to finance, for example, the renovation of a roof, a trip around the world or the education of your grandchildren.
  • Equal: If you are not married, your cohabiting partner also benefits from the capital.
  • Individual: You can invest the capital as you wish, e.g. with a higher return and higher risk.
  • Fiscally optimised: The capital withdrawal is taxed once at a reduced rate and separately from the rest of the taxable income, while the pension is taxed at 100% each year.

Variant 1: Early retirement

Those who do not want to work until the age of 65 or 64 will have to bridge greater income gaps than in ordinary retirement. The AHV pension is reduced by 6.8% for one year or 13.6% for two years of early withdrawal. The earlier one retires, the greater the reduction of the BVG pension:

  • The last years of contribution are those with the highest savings contributions.
  • Your pension capital accrues interest for a shorter period of time, so capital growth is lower.
  • The pension from the pension fund must last for several years, so there is less per month.

Houzy Advice

Good to know

Information on the amount of the pension for pre-retirees, insurance for cohabitees or the conditions for redemption can be found in the pension fund regulations.

How much does early retirement cost?

If you want to retire one year early, you should have about one year's income set aside to finance your living expenses. Or for two years, about two years of income. And so on. In addition, you will have to pay AHV contributions for inactive persons for the period from early retirement to ordinary retirement age. In addition, the AHV pension is reduced for life by 6.8 per cent for one year or 13.6 per cent for two years of early withdrawal.

Variant 2: Partial retirement

Partial retirement is a reasonable alternative if you want to reduce your expenses but cannot (or do not want to) stop working completely. The AHV does not provide for partial withdrawal, whereas in the occupational pension scheme you can reduce your workload and insured pension from the age of 58. In return, many pension funds allow you to withdraw part of your pension savings in the same proportion. If you reduce your workload gradually, e.g. by 20% each year from age 61, and retire at age 65, in many cantons you will save through tax progression, because you will not withdraw the entire capital at once.

Variant 3: Deferred retirement

One in ten Swiss work beyond the normal retirement age. With AHV and many pension funds it is possible to postpone retirement until the age of 70, but disability benefits are usually no longer insured. If you are unable to work, you automatically retire. The longer you work, the more AHV and BVG pension you receive. Inform your pension fund of your plans in good time and discuss the consequences with experts.

Houzy Hint

Tip

If you wish to work longer, you must submit your AHV deferral declaration one year in advance. If you forget to submit the declaration or submit it too late, you will receive AHV without a supplement.

How to close income gaps

You can fill an income gap with, for example, your savings, the capital from a capital life insurance policy or the active balances of pillar 3a (limited self-supply), which can be withdrawn up to five years before your ordinary retirement. You could use the money to finance your living expenses or, more sensibly, pay the capital into pillar 2 and thus supplement your BVG pension. In principle, you could also draw your AHV or BVG pension early, but this would lead to a reduction in your pension.  With many pension funds it is possible to draw pension benefits from the age of 58 or 60.

Houzy Advice

Good to know

Observe the pension funds' regulations carefully. In case of early retirement, some funds also pay the missing pension from the 1st pillar up to the regular retirement age, the so-called AHV bridging pension, in addition to the only slightly reduced pension.

Houzy Hint

Tip

Every decision has consequences. For example, if you retire early from AHV, you fill a short-term gap but receive a lower pension for life. This is why retirement plan is so complex.

Retirement plan: good advice is valuable

Financial plan for retirement is an important factor for you to enjoy your retirement in a relaxed manner without having to worry about money. Let our insurance, pension and wealth experts provide you with comprehensive advice. They will analyse your current and target situation as well as your needs, clarify the affordability of home ownership in old age, advise you on an appropriate investment strategy and optimise your tax burden. In addition, they can turn to specialists at any time for advice on matters of wealth and inheritance law. Retirement planning is long-term. For instance, if you still want to put money into your pension fund and benefit from tax advantages, or if you want to reduce your workload year by year, gradually withdraw your pension capital and reduce your tax burden. That is why you should talk to our experts about your pension five years before D-day. Professional pension planning is useful for ...

  • ... obtain a sound basis for informed decisions.
  • ... have an overview of your financial situation in old age.
  • ... know whether and how it is possible to maintain the house or flat.
  • ... learn to invest their money wisely in old age to achieve their goals.

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Checklist: Retirement plan documents

The better you prepare for the interview, the better our experts will be able to advise you. For the initial interview, you will need to put together these documents:

  • Calculation of the expected pension by the compensation fund or online estimation
  • Current pension certificates and pension fund regulations
  • Last tax return
  • Current mortgage contracts
  • Budget
  • Balance sheet

For many Swiss people, home ownership is an important part of retirement. Find out how much your house or flat is worth today and how to optimise the sale price if you want to sell. With the proceeds, you could buy a smaller, cheaper flat and finance your living expenses after retirement.

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