Semi-retirement: often the happy medium

With the OASI, you can draw your pension up to two years before the reference age. Since the beginning of 2024, you also have the option of a partial pension of between 20 and 80 percent of the old-age pension.

You can also take partial retirement with pension funds from the age of 63 at the latest. Many people can do this earlier, as a rule is possible between the ages of 58 and 70. You will find detailed information on this on your pension fund statement, which your insurance company usually sends you at the beginning of the year.

Pillar 3a, in turn, allows you to withdraw your pension capital up to five years before the reference age, although partial withdrawals (e.g. for home ownership) are no longer possible from this point onwards.

If you are considering partial retirement, you should carefully analyze the individual pillars of your retirement provision. Because when you reduce your working hours and income, you can at best use the strengths of the individual pillars in such a way that you continue to have a stable income and draw a pension – while working less.

As a pensioner, your income will be significantly reduced: The benefits from the 1st and 2nd pillar pension plans secure on average 60 percent of the last income. If you decide to take partial retirement, the gap between your current income and your retirement pension will probably be significantly larger because you will draw benefits early and, in case of doubt, make fewer provisions.

If you withdraw your OASI pension early, you must expect your pension to fall by 0.6% per month of early withdrawal. Because the early withdrawal is possible two years before the reference age, your entitlement can therefore be reduced by a maximum of 13.6%. Separate provisions apply to women of the transitional generation.

Your pension fund pension is reduced because you draw benefits before the normal retirement age. In addition, your lower earned income after the reduction in working hours means that your potential savings and pension provision in the 2nd pillar will decrease. The 3rd pillar is also affected if you are not affiliated to a pension fund. If you add the lost compound interest effect on this potential credit, your pension provision can be significantly reduced.

Because partial retirement depends on many individual parameters, it is essential that you plan the steps and prepare them carefully. This is the only way to find the best time to draw your pension from the respective pension pillars or calculate the best possible amount of financial reduction. If you clarify the income gap before and after retirement in advance, you will be able to gradually retire from your job without any negative surprises.

Measures to close the gap

You can compensate for income gaps in several ways. This means that you can withdraw capital or a pension from the pension fund in advance to the same extent as you reduce your workload. This is how you close the current income gap.

However, because this will reduce your future old-age pension, you can make voluntary contributions into the 2nd pillar in advance. The amount that you may pay in until the start of your partial retirement is noted on your pension fund statement. With a voluntary purchase into your pension fund, you can stabilize your retirement income in the long term. Please note that no lump-sum withdrawal is possible for three years after a purchase into the pension fund.

Another option for closing future financial gaps is to make private pension provision as part of the 3rd pillar: By making a tax-saving voluntary investment in a pension account or a pension custody account, you can build up additional capital for your old age – and close any gaps left by your partial retirement in the 1st and 2nd pillars.

Gradual retirement is a good opportunity for many people to retire slowly and in a planned manner from their working life. You enjoy gradually more free time, while workload and stress become less. This can have a beneficial effect on health.

Partial retirement can also pay off financially. You benefit from the financial security of a partial pension and partial salary. At the same time, you continue to actively participate in working life and build up your pension provision.

In some cases, you may be earning a higher income than before you took your pension. Then you move up to a higher tax progression and have to pay more taxes.

You can react flexibly to such a case: If you defer your OASI pension, your later pension will increase. At the same time, pillar 3a offers opportunities to build up retirement assets while saving tax. You continue to pay into pillar 3a despite partial retirement and thus reduce your taxable income.

Tax advantages of partial retirement through lump-sum withdrawal

Partial retirement can bring further tax advantages: If you have your retirement assets from the pension fund paid out as a lump-sum, the tax rate may be lower than for your income tax. If you also spread the payout over several years, you will reduce your tax burden even further.

However, if you have your pension fund assets paid out as an annuity, this is simply added to your other income and taxed accordingly.