Pension planning
Taking normal retirement: setting the wheels in motion
Are you approaching the reference age and wanting to retire soon? Find out what you need to do to prepare for normal retirement and what support you’ll receive regarding the state pension, your pension fund and the third pillar.
Content:
Content:
- If your employment relationship does not contractually end when you reach the reference age, you must resign from your position if you want to retire.
- You will not receive your state (OASI) pension until after you have registered.
- Before you draw your pension fund assets, you’ll have the choice of a lump sum, a pension or a combination of both.
- In the case of pillar 3a assets, check whether staggering your withdrawals would result in tax advantages for you.
- The alternatives to normal retirement are early, partial and deferred retirement.
- To the conclusion
Many people assume their employment relationship ends automatically when they reach the reference age, but that is not the case. Although gainfully employed persons may take normal retirement as soon as they reach the OASI reference age, they don’t have to. They can continue to work. This is why the employment relationship doesn’t usually end automatically.
Check your employment contract and company regulations to find out what has been agreed in your case or what the normal process is at your company. Employees in state-owned entities usually enter retirement automatically. If you don’t have a specific clause in your contract, this means that you’ll need to resign in order to retire.
You officially terminate the employment relationship by resigning or reaching a contractual agreement. Pay attention to any notice period that may apply. In the case of normal retirement, you need to resign with effect from the end of the month in which you reach the reference age. Your state pension can be duly paid out for the first time in the following month.
Reference age at a glance
The reference age, which used to be called the ordinary retirement age, is governed by law. It represents the age at which insured persons can draw their ordinary state pension from Old Age and Survivors’ Insurance (OASI). In 2024, the reference age is 65 for men and 64 for women.
Pursuant to the OASI 21 reform, which came into force on 1 January 2024, there will be important changes to the reference age: from 2028, the reference age for men and women will be the same (65 years). The ages will be aligned gradually from 2025 onward. The reference age for women will increase by three months each year. Women in the transitional generation born between 1961 and 1969 are eligible for a pension supplement. The amount varies and depends on the year of birth and average income. The supplement will be paid without reductions after the cap for spouses has been applied.
Alternatively, women from the transitional generation can opt to draw their pension early at a lower reduction rate, forgoing the pension supplement as a result.
The OASI does not pay out retirement pensions automatically; you first need to register. Three to six months before you plan to retire you should notify the compensation office to which your social insurance contributions are paid that you wish to draw your OASI pension. This gives the compensation office all the necessary information and ensures your pension will be paid out on time. You can obtain the registration form online or from the OASI compensation offices and their branches.
Calculating your state pension
The amount of your retirement pension is calculated based on your contribution period and income level. If you have a full contribution period, i.e., if you have paid OASI contributions from the age of 21 until the reference age without any gaps, you will receive a full state pension. Whether or not this corresponds to the maximum pension depends, among other things, on the contributions you paid during your working life. As of 2024, the full pension for individuals is a minimum of CHF 1,225 and a maximum of CHF 2,450 per month. In the case of retired married couples, their joint pension is capped at 150 percent of the maximum pension for individuals. This is currently CHF 3,675 per month.
If there are gaps in your contributions, you will receive a partial pension instead of a full one. The more contribution years you are missing, the lower this partial pension will be. A free statement of your individual account will tell you whether you have any contribution gaps.
If you want to know what your pension entitlement is likely to be, you can order a free pension forecast from the OASI compensation offices where you have an account or instruct any compensation office to organize all account statements for you. This is particularly advisable if you want to gain an initial idea of what your future OASI pension may be or determine a possible budget for your retirement. It can also help when planning an advance withdrawal or pension deferral. For young people, a pension forecast is not very meaningful. The forecast of your pension when you reach the reference age is not binding.
Do I have a pension gap?
If the benefits from pillars 1 and 2 are not enough to maintain your desired standard of living in retirement, you’ll need to save more. Find out how much today.
When combined with the state pension, your occupational pension under the second pillar should be equivalent to around 60 percent of your final salary so that you can maintain your accustomed standard of living in retirement. The relevant provisions can be found in the Federal Act on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG) and in the regulations of your pension fund. For example, the act stipulates that pension funds may set a normal retirement age that is different from the reference age. Some pension funds allow retirement from as early as age 58. Everyone has the option of drawing their pension benefits early when they turn 63. If you choose to carry on working until the age of 70, you can continue to be insured in the pension fund.
Unless you notify your pension fund otherwise, you’ll receive your retirement assets in the form of a monthly pension.
You should start thinking well in advance about whether you would like to receive your retirement assets from the pension fund in the form of a pension or lump sum, or a combination of both. To determine your BVG retirement pension, the assets you have accrued are converted into a fixed annual retirement pension using a conversion rate. If you opt for a cash payment, you must notify your pension fund of this in good time. The deadline depends on the fund’s regulations and can be up to three years before retirement. If you do not notify your pension fund of this, you will receive your retirement assets in the form of a monthly pension.
Some pension funds contact the insured or their employer a few months before they reach the reference age so they can make arrangements for the payment of the pension. Other pension funds expect employers to notify them that their employees are retiring. However, employers are not under any obligation to do this. It’s best to contact your HR department or pension fund in good time before you retire.
Voluntary retirement provision consists of tied pension provision (pillar 3a) and flexible pension provision (pillar 3b). It’s possible to have your assets from pillar 3a paid out no earlier than five years before you reach the reference age and no later than when you reach the reference age, unless you remain gainfully employed. In this case, you can defer withdrawal until you reach the age of 70, and you can continue to make contributions and deduct these from your taxes. For more information, contact the bank or insurance provider that manages your pillar 3 account.
You have to withdraw all the assets in a pillar 3a account in one go as a lump sum and will have to pay capital withdrawal tax on this amount.
Worth knowing
In most cantons, there can be tax advantages to having several pillar 3a accounts and closing them in different tax years. Staggering your withdrawals in this way allows you to avoid higher rates of tax. Incidentally, lump sum withdrawals from the pension fund are also subject to this tax, which is why it often makes sense not to withdraw pillar 3a assets in the same year as your pension fund assets.
Don’t wait until you are approaching the reference age to start preparing for normal retirement. Note the following steps.
Ordinary retirement doesn’t suddenly appear out of the blue. However, unlike the birthday on which you reach the reference age, your retirement will not happen automatically. To avoid any surprises when you’re about to retire, and to ensure that everything goes smoothly and as expected with the OASI, pension fund and other retirement assets, you should plan the transition in good time. Our experts will be happy to assist you.
Disclaimer
Disclaimer
