Retirement à la carte
Udo Jürgens once sung: "Life begins at 66." His song about a pensioner in love with life was a big hit in 1978. When do you want to retire? As early as possible, at the normal time or preferably a bit later?
Regula is currently asking herself these very questions. When Udo Jürgens brought out his hit she had just started her commercial apprenticeship. Now she has celebrated her 30th wedding anniversary. That has got her thinking about how quickly time passes… Hopefully she and her husband, Urs, can spend many more active and healthy years together. The couple have long since dreamed of moving to Ticino after they retire. They also want to travel and see a great deal of the world. Early retirement would be great – but can Regula afford it?
Profile of Regula
- Age: 56
- Current income: 100,000 Swiss francs
- Occupation: IT specialist for a Swiss SME
- Education: commercial apprenticeship and various further education
- Married to Urs, 61, for 30 years
- Regula lives with her husband in a condominium in an extended urban area
- Hobbies: travelling and dancing the tango
Regula has just received her pension certificate from Vita Collective Foundation and is studying it with a frown. At first she doesn't understand what the figures mean. But a call to the BVG Help Point enables her to clarify everything quickly.
The classic: early retirement
A month after Regula has turned 58, at the earliest, she can take early retirement. This will provide her with valuable time to enjoy life, pursue her hobbies or travel. But early retirement must be affordable. Regula would prefer to retire at 62. That is also the earliest that she can draw her OASI (old-age and survivors' insurance) pension. Because her regular pension age is 64, she would lose two years of OASI contributions and two years of pension fund contributions. As a result, early retirement would mean she had 7,760.85 francs less in her account per year. In other words: instead of around 58 percent of her present income of 100,000 Swiss francs, she would have to manage with 50 percent.
The spouse's situation is also important
The ensuing shortfall can be partially offset by pension fund purchases. The third pillar or other sources of income can also help to compensate for the loss. For instance, perhaps Regula will decide to sell the condominium and rent a small apartment in Ticino. The situation of her husband, who is five years older, will also play a crucial role: What retirement benefits will he receive from the first and second pillars? When will he retire? After all, if both draw an OASI pension, it is capped at 150 percent of the two individual pensions, with a maximum of 42,300 Swiss francs. Many scenarios are conceivable.
How Regula's figures arise
In the event of retirement at 62, her conversion rate for mandatory retirement assets would drop from 6.8 to 6.576 percent and for super-mandatory retirement assets from 6 to 5.73 percent. Let's assume that Regula has paid her OASI contributions without any breaks and that she has accumulated pension fund capital of 300,000 Swiss francs to date. Because her average income up to retirement is over 84,000 francs, Regula would receive a so-called "full pension" from OASI at the age of 64. However, in the event of early retirement this would fall by 13.6 percent, from 28,200 to 24,364.80 francs. And in the example cited, her pension from occupational retirement provision would reduce from 30,391 to 26,465.35 Swiss francs. Early retirement would thus mean she had 7,760.85 francs less in her account overall.
For anyone who wants to carry on working: deferred retirement
More and more people want to continue to work beyond retirement age. The law as it stands enables them to remain in employment at least until their 70th birthday. Regula is also considering what her situation would be like then. She ascertains that there are two variants available to her with Vita Collective Foundation:
- The person works beyond ordinary retirement age in agreement with their employer. No additional savings and risk costs arise. The money in the pension fund remains and continues to accrue interest. As the employee is older at the time of retirement, the conversion rate will be higher, as will the pension.
- The pension fund's pension plan stipulates that savings can be accumulated beyond the age of 64 or 65. This means that the retiree not only benefits from additional interest earned and a higher conversion rate but also continues to pay in pension contributions that cause their pension fund capital to grow appreciably. However, risk contributions also lapse in this variant.
If Regula works until the age of 70, what will it mean for her pension?
Regula runs through the scenario that she continues to work up to 70
Her employer allows her to continue to pay in old-age contributions. This means that her retirement savings capital would increase significantly, her conversion rates would rise and her OASI pension would go up. Regula is surprised at what this would mean: overall she could expect an annual pension from the first and second pillar of 81,790 Swiss francs. That might well even be enough for an apartment with a view of Lago Maggiore. Nevertheless, Regula decides against this: she wants to enjoy retirement with her husband after all.
How Regula's figures arise
If Regula continues to work until the age of 70, her retirement assets in her pension fund would increase to 603,897 Swiss francs, while her conversion rate for mandatory retirement assets would rise from 6.8 to 7.606 percent and for super-mandatory retirement assets from 6 to 7.08 percent. This would mean a pension fund pension of 44,707 Swiss francs. She can defer her OASI pension for a maximum of five years, which would increase it by 31.5 percent. Alongside the OASI pension, this would create a total of 81,790 Swiss francs.
The best of both worlds: semi-retirement
Regula investigates another option: as she still enjoys her work but wants to allow herself more free time, semi-retirement could be of interest to her. With Vita Collective Foundation, this can be designed relatively flexibly between the ages of 58 and 70. However, the employee must have full capacity for work.
Regula can enter into semi-retirement in a maximum of three steps, each of which must amount to 20 percent of a full-time post – and there must be at least one year between each step. Afterward, the degree of employment cannot be increased again. The retirement assets for the semi-retirement steps consist of mandatory and super-mandatory components in the same proportion as the total retirement assets. Retirement benefits may be claimed either in whole or in part as capital for the individual semi-retirement steps. A maximum of two capital withdrawals is permissible.
Important to know
Some cantonal tax authorities require higher minimum steps when reducing working hours. In the canton of Zurich, for instance, steps of at least 30 percent are demanded. For that reason, it is urgently recommended to clarify tax aspects with the tax authorities in advance.
Another option: simply work less
Of course, older employees can decide to reduce their working hours without this necessarily meaning semi-retirement. If an employee has already reached the age of 58, their employer can also allow the previous (higher) salary to continue to be insured despite a reduction in working hours. This means there are no gaps in terms of pension fund contributions, and the employee receives the same retirement benefits as they would if they had not reduced their working hours. It's a matter for negotiation whether the employee finances this continued insurance coverage alone or whether the employer pays a share.
Every situation is different – it's worth having a conversation about it
As a forward-looking pension fund, Vita Collective Foundation offers great flexibility to respond to the individual needs of insured persons. Many factors need to be considered to find the best solution: financial background, family situation, hobbies and goals in life, age and situation of partner, any residential property and health. This all means that a discussion with the pension expert is well worth it.
