Retirement Partial retirement – a gentle transition

Very few people can afford early retirement. However, phased partial retirement is possible for almost everybody.

by UBS Insights 05 Jul 2017

Many pension funds give you an option to retire early, starting when you are 58 years old. But even among the most disciplined savers, many cannot afford early retirement. In this case, gradual withdrawal from working life and simultaneous partial retirement is an alternative.

Take note of restrictions

There are no uniform rules for early or gradual retirement. It depends on your pension fund’s regulations. But there are some restrictions and cantonal differences:

  • Your level of employment and salary must be permanently reduced by 20 to 30 percent (you are not allowed to increase the amount you work later on).
  • Benefits from your pension fund must be proportionate to your reduced level of employment.
  • Before you permanently leave the workforce, your level of employment must be at least between 20 and 30 percent, depending on the canton.
  • Two or three partial lump-sum withdrawals are possible, depending on the canton. Often, the last portion of your pension fund assets must be drawn as a pension.
  • The time between partial retirement steps must be 6 to 12 months.
  • The conditions for partial retirement must be laid down in the pension fund regulations, and the cantonal tax authorities must also be informed about them.

Reducing the hours you work before you reach statutory retirement age will cause your pension to be reduced. The impact can be partially cushioned by voluntarily purchasing pension fund benefits.

Save taxes with partial retirement

You can save a lot of money through partial retirement, depending on the canton, since you withdraw your pension fund assets in stages and therefore pay significantly less in tax. Even so, your decision to choose gradual retirement should not be based solely on tax considerations. How you’ll secure your income after retirement, and use your assets in a targeted way in your later years, are just as important.