Partial retirement—the smarter way to retire?
Updated on 24.04.2025 CEST
Published on 08.04.2022 CEST
Partial retirement is popular in Switzerland for a number of reasons, such as tax benefits and a positive impact on your financial situation. Here's what you need to know about leaving working life in stages.
Do you dream of having more time for yourself, your grandchildren, or your hobbies? Then you are like many employees and self-employed people in Switzerland. Although early retirement frequently emerges as the initial solution, it may not always be the most beneficial choice.
One way of realizing your desire for more time is to opt for partial retirement. However, this decision should be paired with detailed financial planning that considers the various pension schemes available. This article will discuss the effects of partial retirement on your second pillar.
The alternative to early retirement
Rather than transitioning into retirement abruptly, you have the option to gradually phase out of your working life. This is the essence of "partial retirement" in Switzerland, where you retire in one or more stages. For instance, you could reduce your workload to 80 percent at age 61, to 60 percent at age 63, and then fully retire at age 65. If you have worked actively for several decades, the sudden shift to retirement can have significant health and emotional implications that should not be underestimated.
Advantages of phased retirement
- Steady Income: You continue to earn a regular salary
- Continued retirement saving: By remaining in the workforce, you contribute to your pension funds
- Maintaining wealth: Consumption of your assets is delayed
- Lower expenses: You continue to make AHV contributions and therefore do not have to pay AHV non-employed contributions (AHV-Nichterwerbstätigen-Beiträge)
- Tax relief: You can withdraw your retirement assets in stages, which often results in lower taxes (Kapitalauszahlungssteuern) compared to lump-sum withdrawals
Sound exciting? If so, you should consider some other important points before deciding to embark on the journey of partial retirement.
This is often underestimated: Not every employer may be open to accommodating your request for a reduced workload, and not every job role may allow for it. Clarify the issue early on and adjust your plans if required.
With the implementation of the AHV 21 reform in 2024, new minimum requirements for the transition to partial retirement have been established, particularly when reducing your workload. These minimum requirements can be interpreted more flexibly by the pension funds, which can be beneficial, depending on your plans:
- A maximum of three partial retirement steps with a lump-sum payment (more partial retirement steps are possible with a pension payment)
- The first partial retirement step must be at least 20 percent (significant reduction)
- A minimum of 12 months must elapse between individual partial retirement steps (permanent reduction)
- An equal reduction in both employment level and salary (corresponding to the partial retirement.
Please note that the criteria for partial retirement can differ from canton to canton. In addition, tax considerations should be evaluated independently.
Contact us to analyse your tax situation with our experts.
If feasible, a reduction in workload combined with a continued insurance for your current salary should be considered. Many pension funds offer this option. From a financial planning perspective, this offers interesting opportunities for tax optimization, particularly in the case of high taxable income/assets and in cantons with a flat progression for capital gains taxes.
Although additional employer and employee contributions must be paid, these can be deducted from taxable income. This means that regular contributions continue to be paid into the pension fund, achieving the original savings target. Moreover, the assets remain tax-free for longer.
Conclusion: Plan ahead
Partial retirement offers compelling possibilities for a gradual transition into the third phase of life. However, there are a few points to consider, particularly from a tax and pension law perspective. Early, long-term planning with professional guidance can help you implement your personal retirement strategy in the most effective manner. Our pension experts will be happy to assist you.
Updated on 24.04.2025 CEST
Published on 08.04.2022 CEST
ABOUT THE AUTHORS
Show more articlesPatrick Diem
Senior Financial Planner