How to continue working after retirement

Retirement doesn’t have to mean the end of your working life. If you wish to continue working, and your profession and employer allow you to do so, you can decide to carry on working after reaching retirement age. When you work after retirement, you either receive your salary and pension at the same time, or you initially receive only a partial pension and will be entitled to a higher amount later on. However, you can also postpone the date of the payment of your pension altogether. This is possible for a minimum of one year and a maximum of five years, and leads to a lifelong supplement.

Continuing to work after retirement can be beneficial in several ways. Many people appreciate the social contact and the opportunity to pass on their own experience to younger colleagues. Earning money after retirement is also a way to optimize your pension planning and increase your pension.

If you receive your salary and pension at the same time, you can gain a tax advantage by paying contributions to the pension fund even after reaching the reference age. However, you will need your employer’s consent. Otherwise, your pension and salary will be taxed together as income, which can result in a considerable increase in your tax burden.

Alternatively, you can avoid this by withdrawing part of your pension fund assets as a lump sum to reduce your taxable income. Payments into pillar 3a can also reduce taxes as long as you are working and have not yet reached the age of 70. However, it is important to note that some cantons take a higher general insurance deduction into account on your tax return if no payments have been made into pillar 3a.

You may also be able to make withdrawals from the pension fund and pillar 3a on a staggered basis. As the tax authorities add up the withdrawals each year, this can break the tax progression in many cantons. The general rule is that the higher the amount withdrawn, the higher the tax burden. If you continue to work, the OASI 21 reform will give you more flexible withdrawal options for your pillar 2 assets. This will mean more possibilities for optimizing taxes. Whereas pension fund assets were previously often paid out when people reached the statutory retirement age, unless the regulations provided otherwise, you can now defer withdrawal until the age of 70 if you are still working. The same applies to pillar 3a assets. For vested benefits accounts, the deferral until the age of 70 permitted from 1 January 2030 will also be linked to continued employment.

If you are not reliant on your OASI pension, it may be advantageous to defer it. Deferral is possible for between 1 and a maximum of 5 years beyond the reference age, i.e. up to the age of 70. Partial deferral is now also possible, so you can choose to postpone the payment of between 20 and 80 percent of your pension. The proportion of the pension you draw can be increased once. If you decide to defer your pension, you will receive a supplement of up to 31.5 percent for life, depending on the duration of deferral. For a one-year deferral, the supplement is at least 5.2 percent. On the minus side, drawing an OASI pension even though you still have sufficient other income can increase your tax burden due to tax progression.

Deferral is generally recommended if you can assume that you will live to the age of 86 or older as a man, or 85 or older as a woman, because you are in good health. Ultimately, this means that the cumulated pension amount you will receive will be higher than if you had drawn a standard pension.

It is important to remember that you must apply for deferral no later than one year after the start of ordinary pension entitlement, although you don’t need to specify the exact duration of the deferral. Otherwise, the OASI will retroactively order the payment of your pension without a supplement from the reference age, and this can no longer be reversed.

Many people in employment aren’t aware that they remain subject to OASI contributions if they work beyond retirement age. The usual contributions are deducted if your annual income exceeds 16,800 francs (personal allowance) per employer. Until the end of 2023, these were solidarity contributions that did not result in a higher pension. On request, any OASI contributions paid after the age of 65 can now be taken into account for calculating your pension. To increase your pension even further, you can even decide to waive the personal allowance, and pay contributions on your total earnings. This makes it possible firstly to close any previous contribution gaps, and secondly to increase your personal OASI pension thanks to the contributions you pay. To benefit, you can request the recalculation of your pension once before the age of 70. It is advisable not to do so until you are giving up work for good.

As with the deferral of the OASI pension, postponing the payment of your pension fund pension also leads to a lower income in the relevant year. This results in a lower tax rate, and you will therefore pay less tax. Deferral is possible until age 70 at the latest. Whether or not you can make further voluntary contributions depends on the pension fund regulations. If you prefer not to defer your pension fund pension, you should decide at least three years before the statutory retirement age whether you would like to have your pension fund assets paid out as a lump sum or would prefer to draw a monthly pension. A mixture of the two is also possible.

The general rule is that your current expenses should be covered by current income. This comprises pensions, investment income and other regular income. You can use a lump sum payment for larger projects and purchases, or pass the capital on to your descendants. The answer to the question “pension or lump-sum withdrawal?” can also be a combination of the two. A married couple could decide that one person will draw a pension and the other will opt for a lump-sum withdrawal, for example.

Anyone who remains in gainful employment after reaching the reference age can continue to build up assets in pillar 3a. This is currently possible up to the age of 69 for women and 70 for men. This increases the assets saved whilst reducing taxable income at the same time. Employees of retirement age without a pension fund can pay one fifth of their net income into pillar 3a, up to a maximum of 35,280 francs. If you have deferred your pension fund pension, the maximum contribution remains 7,056 francs.

It may be worth continuing to work after retirement – both for your health and for your finances. However, you should plan your professional situation after retirement age carefully. This includes coordinating pension and salary payments.

If you are unsure about the best way to combine a salary and a pension, our UBS client advisors will be happy to help.