Given the opportunity, 80% of Swiss citizens would take early retirement.  In reality, around half of the population retire before the reference age, with one quarter of them being forced to do so (study conducted by Credit Suisse in 2020). According to the Swiss Federal Statistical Office, the average age to stop working was 65.1 in 2021, a drop in comparison to the peak seen in 2017 (65.8). 

How old do you have to be to retire?

Both the 1st and 2nd pillar allow for early retirement, but according to different rules.

The 1st pillar (old-age and survivors’ pensions, known as ‘AVS’)

The reference age for taking retirement in Switzerland is 65. The reference age for women is increasing from 64 to 65 years of age and this will start to be implemented one year after the AVS 21 reform takes effect, with the age being raised by 3 months each year. This means that, if the reform becomes effective in 2024, the reference age for men and women will be fully aligned at 65 by 2028. But the Swiss Federal Council is yet to set a firm date for the implementation of this reform and decide on the provisions to govern this. 

If you don’t want to wait until you’re 65 to retire, you can start collecting your AVS pension a full 1 or 2 years earlier, at 63 years of age at the earliest. What’s more, the AVS reform, scheduled to enter into force in 2024, will allow people to start collecting just a part of their pension early, an amount somewhere between 20 and 80%, and to save the rest for later, facilitating a gradual transition into retired life. In any case, it’s not possible to start receiving any part of your AVS pension before the age of 63 (still 62 for women for another few years).

The 2nd pillar (occupational pensions, known as ‘LPP’)

It’s possible that the regulations in place for your pension fund allow early retirement with the early payout of benefits, but at the age of 58 at the earliest, as stipulated by Swiss pension law (LPP).

How much does it cost to retire early?

Taking early retirement is relatively costly, so it's important to be well prepared and have calculated the savings you’ll need in advance. The better you plan, the more flexible you’ll be, and it’ll be worth your while.

The 1st pillar (old-age and survivors’ pensions, known as ‘AVS’)

The AVS pension reduces by 6.8% for each year of early retirement and every year thereafter. In addition, you have to pay into your AVS fund until the statutory retirement age and so you should budget this in.

 Let’s take the example of a teacher who has always worked full time. They would have been earning around 70,000 CHF per year since they were 25, with this being gradually raised to 115,000 CHF per year until they retire at 65. They would receive the maximum AVS pension of 29,400 CHF per year (amount in 2023). 

If they decide to retire 2 years early, their AVS pension would reduce by 13.6% to 25,401 CHF, and this doesn’t take into account the amounts that still need to be paid into the fund.

The 2nd pillar (occupational pensions, known as ‘LPP’)

When it comes to the 2nd pillar, the amount the pension reduces can vary. It’s worth noting that you generally make the largest contributions to your LPP pension fund during your last 5 years of work. As such, if you choose to retire early, your losses will be just as great, amounting up to several hundred francs less a month.  It is therefore recommended to consult the regulations of your own pension fund to check whether or not you are able to collect a bridging pension, known as pont-AVS in Switzerland, until the statutory age of retirement.

For our teacher, if we take an average conversion rate of 5%, they would be able to collect a pension amounting to 25,000 CHF per year.

If they decide to start collecting their LPP pension 2 years early, then they would be able to collect an amount of around 20,750 CHF per year.

Total

Taking the two pensions together, our teacher would go from collecting a pension of 54,500 CHF per year if they were to retire at 65, to collecting a pension of 46,151 CHF per year if they were to retire at 63, equating to a decrease of around 15%.

Supposing that they continue to live for another 20 years, this means that they would lose a total of 164,980 CHF.

What are the options available for taking early retirement stress-free?

In the example above, taking early retirement would cost our teacher around 165,000 CHF. In order to plan for this future cost, they can start putting money aside earlier. If they begin preparing for their early retirement at the age of 40, they should save around an additional 7,000 CHF per year, an amount that’s by no means negligible and for this reason, it’s worth starting to think about your options as early as possible.

Here’s where planning your assets and finances comes into play. Just like building a house, building up wealth for early retirement requires some serious planning. By doing so, you’ll be able to assess any potential gaps and issues which need to be faced, taking into account the options available to you with regard to your sensitivities and life goals.

Some options available to you include:

Buying back contribution years in the 2nd pillar

Gaps in pension cover can arise at any point in time as a result of a pay rise, change in working hours or other career hiatus. It also happens often that divorce or taking money out of your pension fund to buy a property can put some serious strain on your retirement savings. 

In these cases, you can buy back any years you’ve missed within the framework of the 2nd pillar. The amount you’re able to buy back is noted down on your pension fund certificate. The difference, therefore, between your current retirement savings, and those you could have had if you’d always been in your current situation, can be rectified with one single payment or staggered payments over time, the latter appearing to be more tax effective. As a matter of fact, if you choose to make these payments, it is usually the case that they can be deducted from your taxable income and must be carefully thought through. 

Voluntary contributions to a 3rd pillar

The 3rd pillar pension system is an optional Swiss scheme. Its purpose is to supplement the 1st and 2nd pillars. Over and above acting as additional retirement savings in the form of capital, it can also cover the risks of disability and death. The 3rd pillar can actually be split in two: pillar 3a, which consists of a connected pension fund and pillar 3b as a free pension fund. 

The connected 3rd pillar

The connected 3rd pillar (3a) gives people affiliated with a pension fund (usually employees) the option of paying in up to CHF 6,883 (7,054 CHF in 2023) in contributions per year and up to 20% of their net income, with a maximum of CHF 34,416 (35,280 CHF in 2023) for people not affiliated with a pension fund (typically those who are self-employed). These amounts are regulated, as you can deduct them from your taxable income, meaning you can save a considerable amount in taxes, as well as improving your level of cover for disability and death and the services to which you will be entitled when you retire.

This pillar is said to be ‘connected’ because it can only be used under certain conditions (retirement, purchase of a main residence, becoming over ⅔ disabled, leaving Switzerland for good or setting up your own freelance business).

It is strongly recommended to start saving as early as you possibly can. As a matter of fact, the principle of compound interest means that someone who starts paying in early will gain more capital than someone who starts paying in higher amounts later on thinking to make up for the delayed start. Just because you can’t put away the maximum amount possible in the 3a pillar shouldn’t stop you from starting to save today.

Let’s think back to our teacher and imagine that they have been paying around 4,704 CHF into their 3a pillar fund every year for a total of 30 years, starting from the age of 35. With an assumed return of 1.5% per year, they would receive a 176,582 CHF payout. Now let’s imagine that they started to put money away 10 years later, at the age of 45, meaning they would save over a total of 20 years, putting in the maximum deductible amount permitted to “make up for their delay”, that being 7,056 CHF per year. With the same assumed return of 1.5% per year, they would get a 163,161 CHF payout from the age of 65. To sum up: even though the total amount paid in would be the same in both cases, our teacher would gain 13,421 CHF more if they do as outlined in the first instance. 

The free 3rd pillar

The free 3rd pillar (3b) offers greater freedom in terms of the payments you can make and how you can collect your pension, but it is only deductible from taxable income in certain Swiss cantons, namely Fribourg and Geneva. In Geneva, a married couple with two children can deduct up to CHF 5,174 (2022 figure) and, depending on their marginal tax rate, will save around a third of this amount in taxes.

What are the other possible options when it comes to retirement?

Over and above normal and early retirement, there are two more options when it comes to retiring.

Phased retirement

Also known as partial retirement, this option allows you to gradually reduce the amount you work. You’ll receive your salary as well as a portion of your old-age benefits in the form of capital or annuity payments. This way, there would be fewer negative financial implications. Depending on the regulations in place for your pension fund, you may be able to reduce how much you work in one or multiple stages, starting from the age of 58. As a general rule, the minimum reduction possible is 20%.

In spite of reducing your working hours and therefore also the contributions you make to your savings, your pension fund may nevertheless allow continued 100% contributions to your savings as based on your previous salary. You may also pay in additional contributions as a matter of course, avoiding any reductions in old-age benefits in doing so. 

At the same time, at each stage of partial retirement, you can also choose to receive your pension in the form of capital or annuity payments, or to only start receiving these as of the statutory age of retirement. When planning your retirement, it can be a sensible option to stagger how your capital is paid out to you as part of the 2nd pillar and coordinate this with other capital pension payments.

Within the framework of the 1st pillar, partial retirement may prevent you from being classed as unemployed within the scope of the AVS and therefore from making contributions as such. At the same time, if you are still employed in the eyes of the AVS, you can continue to pay into pillar 3a.

Deferred retirement 

There are some people who want to continue working. Depending on the regulations in place for your pension fund, it’s possible to keep working until the age of 70.

In any case, if you opt for a different form of retirement than that provided for by law, you must inform the AVS as well as your pension fund.

And how about retiring before the age of 58? It can be done. In this case, you won’t be classed as a pensioner, but an individual of private means (known as a “rentier” in Switzerland).

Which option is the one for you? Why not have a no-obligation comprehensive assessment done? This will allow you to take stock of your current situation and shed light on any potential gaps. You’ll then be aware of what means you have available to achieve your personal and professional goals.