Early retirement: what you need to know

The possibility of early retirement

Retirement doesn’t only have to begin once you reach the statutory reference age. If you want to, you can end your professional career earlier and begin the next stage of your life ahead of time by retiring early. This means you go into retirement before reaching the statutory reference age. Since 1 January 2024, this has been set at 65 years of age, and applies both to the OASI pension and employee benefits. Gradual adjustments have been made to the reference age for women born between 1961 and 1963. Transitional arrangements therefore apply to this group.

It’s important here to carefully check the effects on the three pillars of the Swiss retirement system – OASI (1st pillar), employee benefits (2nd pillar) and private pension (3rd pillar) – to avoid financial shortages and enable you to enjoy your retirement to the full.

Your early retirement should be well planned

Retiring early may sound attractive, but it often comes with significant financial downsides. This is because the contributions made into the important pension pillars – i.e. OASI, pension fund and the private pension – end earlier. Pension payments are also often reduced, as the money saved has to last for a longer period of time. You should think these two factors through carefully if you’re considering early retirement and begin planning this as soon as possible – ideally from 50 years of age.

Before retiring early, it’s a good idea to find out about your personal pension entitlements and contribution reductions by contacting the compensation office. You can also check here how your years of contribution and possible pension gaps can affect your pension amount.

It’s also important to have a detailed overview of the financial possibilities and identify any existing gaps. It’s a particularly good idea to make the most of savings opportunities, such as pillar 3a, to build up some financial reserves.

If you are married, you should also be aware that taking early retirement affects the pension entitlements of both spouses. You should therefore take into account the overall impact on your household budget.

Early retirement and the 1st pillar (OASI)

In Switzerland, you can withdraw your OASI pension up to two years before the statutory reference age. It’s important to keep the following points in mind: 

Early retirement and a reduction in OASI pension

Men and women can draw their pension from 63 years of age. Women born between 1961 and 1969 can continue to draw their pension from 62 years of age.

However, an anticipated withdrawal leads to a lifelong reduction in pension payments: a one-year anticipated withdrawal reduces the pension permanently by 6.8 percent, and a two-year anticipated withdrawal by 13.6 percent. Furthermore, you are still obliged to make OASI payments until the statutory reference age, even if you retire early.

Tax aspects

The OASI pension is fully tax liable. Deductions that apply to employed people, such as for commuting and meals, don’t apply. Tax reductions for payments into the 3rd pillar are no longer possible if you don’t earn an income subject to OASI.

Early retirement and the 2nd pillar (pension fund)

Employee benefits (the pension fund) generally allow you to withdraw saved assets from 58 years of age at the earliest. Early retirement can also affect the pension amount in your pension fund.

Capital withdrawal or pension: your options with your pension fund

You can withdraw your pension fund assets simply as a pension, have it paid out as capital in full or in part or have it transferred to a vested benefits account.

Capital withdrawal gives you more flexibility for investments or particular life situations and can reduce the income tax paid during retirement in comparison to a pension withdrawal, which you have to pay full tax on just like a OASI pension. That said, be aware that the withdrawal itself is likewise taxed. After capital withdrawal, management of the capital falls to you.

That said, be aware that the payment itself is likewise taxed. After capital withdrawal, management of the capital falls to you.

Bridging pension benefit

If, like the majority of people in Switzerland, you only take out your work pension early, you ought to check whether your pension fund provides a supplementary pension until you reach the statutory OASI reference age.

Many pension funds allow people taking early retirement to receive what’s known as bridging pension benefit in addition to pension fund assets. Bridging pension benefit is paid out until the person reaches statutory pension age. This pension can be used to avoid an early OASI withdrawal. Anyone taking early retirement usually has to finance the bridging pension benefit themselves or at least contribute to the costs. The pension paid out is deducted from your pension fund assets, leading to a lower old-age pension. Bridging pension benefit is therefore of greatest interest if your employer covers the financing. It’s a very good idea to ask your HR department about this.

Conversion rate

Your pension fund amount depends on the conversion rate used to convert your pension fund assets into a lifelong pension. Contact your pension fund for information on the conversion rate for the mandatory and non-mandatory part of your retirement assets.

Early retirement and the 3rd pillar (private pension)

The tax-privileged private pension is an important pillar for early retirement, as it allows you to use your saved money flexibly. You can withdraw your pillar 3a credit up to five years before reaching the statutory reference age.
It’s a good idea to pay into a pillar 3a or retirement fund early in order to save more assets before an (early) retirement and to benefit from tax advantages.

Withdrawals and tax aspects

Withdrawals from pillar 3a are liable to taxation, regardless of when they are made. In some circumstances however, the staggered withdrawal of 3a funds or pension fund money can allow you to save on taxes – provided you have multiple pillar 3a accounts or you withdraw the funds from the pension fund as capital. A thorough plan helps you reach the right decision. You can find more precise information on this topic in our pillar 3a blog article.

Supplementary private assets

In order to close income gaps, life insurance and other private savings can be used. However, calculate precisely how much you need to act as a bridge to avoid reducing your financial cushion later in life.

The special case of semi-retirement

People who don’t want to end work abruptly, but rather reduce their working time gradually can consider semi-retirement as an alternative to early retirement. This provides the option of only withdrawing a part of the OASI and/or pension fund assets early. OASI allows partial retirement in three steps between the ages of 63 and 70, and many pension funds allow semi-retirement from the age of 58 or 60.

The advantage of semi-retirement is that it’s often more cost effective than complete early retirement. For example: a man with a yearly income of 120,000 francs would have a pension reduction of around 160,000 francs if he takes early retirement at 63 years of age (assuming pension withdrawal for 23 years). If he reduces his employment level to 50 percent, however, the shortfall is reduced to about a quarter and he will continue to receive a reduced income.

Semi-retirement can also be beneficial for taxes, as payments can still be made into pillar 3a. 

To sum up: good planning and advice are essential

Early retirement lets you get a head start on your well-earned rest time. However, it’s important to know that ending work early has an effect on your 1st and 2nd pillar pension amounts. Financial gaps may appear as a result, which can often only be closed through additional private asset growth – such as by making payments into the 3rd pillar. People who want to maintain their standard of living into retirement are advised to carefully balance their needs and financial options.

With the right preparation and targeted growth of private reserves, the income requirement in retirement can be flexibly managed. If you plan early, you can afford to take these additional valuable years and enjoy retirement however you want.

We would be pleased to set aside time to discuss these matters in a non-binding consultation.