However, most companies are far from taking advantage of the leeway offered by the Occupational Pensions Act (BVG). The BVG permits early withdrawal of retirement benefits from the age of 58. If one withdraws one's pension fund benefits early, the retirement capital is smaller than with ordinary retirement. The conversion rate is reduced, which is used to convert the capital into a lifelong pension. Most pension funds reduce the pensions of early retirees by 5 to 7 percent per year of early withdrawal. Consequently, those who retire at 63 instead of 65 will receive 10 to 14 percent less pension. This reduction in benefits can be compensated for with higher payments into the pension fund. The tax savings that insured persons achieve in this way reduce their costs of early retirement.

Great potential for optimization

As a rule, savings contributions to the pension fund may amount to up to 25 percent of the insured AHV annual salary. The following example shows how much an existing pension solution can be optimized: A 55-year-old company owner earns 280,000 francs a year. His current PF pension plan insures the salary up to 150,000 francs. The savings premium is only 15 percent of the insured salary. If the company owner simultaneously increases the savings premium to 25 percent and the insured salary to 280,000 francs, his annual savings contributions increase from 22,500 to 70,000 francs per year. The additional savings premiums reduce his taxable income, and the expansion of pension benefits also increases his potential for voluntary purchases. The company owner can now pay an additional 1.2 million francs or so into the pension fund and deduct this amount from his taxable income. With a voluntary purchase of 30,000 francs, he saves around 10,000 francs in income tax at a marginal tax rate of 30 percent. If he withdraws this amount at retirement, he incurs about 5,000 francs in withdrawal taxes. The return on the purchase is therefore 5,000 francs (excluding investment income).

A modern pension plan allows cadre employees to make purchases not only up to the amount of the regulatory benefits, but also for early retirement. This means that insured persons who have already bought in for the full benefits on ordinary retirement can make additional purchases.

Tax savings with a partial retirement

Because partial retirement is particularly common among managers in addition to early retirement, a modern management pension plan offers insured persons the option of drawing their retirement benefits gradually from the age of 58 and continuing to insure their full salary in the pension fund until the regular retirement age, which they have drawn up to that point. This is permitted by law, provided they earn no more than 50 percent less after reducing their workload. This means that retirement benefits are the same as without a reduction in working hours, and the tax burden is significantly reduced. The BVG stipulates that the employer must only pay its share of the pension fund contributions on the effective salary. The employee pays the remaining savings contributions and the risk premiums on the fictitiously insured portion of the salary. The employee may deduct these contributions from his taxable income. Thanks to continued insurance at full salary, insured persons can continue to buy into the pension fund in full and also deduct these voluntary contributions from their taxable income. If only the actual salary is insured, the savings contributions and also the purchasing potential shrink.

The company owner in the example calculation reduces his workload at 58 from 100 to 60 percent (see table below). His effective salary thus falls from 200,000 to 120,000 francs. If only the effective salary is insured, the owner can only deduct his savings contributions as an employee in the amount of 12,000 francs from his gross salary. Purchases into the pension fund are no longer possible. If the company owner remains insured at the previous salary, he can deduct employee savings contributions of 28,000 francs and continue to additionally reduce his taxes with purchases. Thanks to the higher savings contributions and a purchase of 15,000 francs, he saves 8,500 francs in taxes - per year.

Optimization of own retirement provision

A pension analysis by an expert provides the necessary basis for decision-making. The analysis lists all benefits from the three pension pillars and provides optimization suggestions on how the benefits can be improved. Company owners and members of the management have greater freedom to shape the plan, as they can directly influence the various solutions. Possible areas of optimization are:

• Insured salary in the pension fund: In the mandatory part of the BVG, the maximum insured salary is currently CHF 59,925. This is calculated from your current salary minus the so-called coordination deduction of currently CHF 24,675. Thus, wages up to around CHF 84,600 are compulsorily insured. Wages above this amount are either not insured at all or insured voluntarily. Thus, additional retirement savings can be saved by insuring wages above CHF 84,240 voluntarily and the entire annual salary without coordination deduction.
• Above-mandatory and extra-mandatory BVG: Salaries above CHF 84,600 and above CHF 126,900, respectively, can often be insured at better conditions (higher savings contributions, better interest rates), depending on the pension fund.
• Paying into the pension fund: It is often forgotten that there is a purchase potential into the pension fund due to salary increases. This should be closed, provided that liquidity is available. On the one hand, payments into the PF have the advantage that they improve benefits upon retirement and the amount paid in can be deducted in full from taxable income.
• Choice of pension foundation and investment of pension capital: There are very large differences here in terms of flexibility, costs and returns, and their impact on retirement savings can be quite significant.
• Pillar 3a: It is important here that the annual maximum amount, assuming liquidity, is paid in every year. A comparison of the costs and returns of the various providers is also useful here.

By taking advantage of these opportunities, you can substantially improve the benefits available at retirement. And the earlier you start optimizing, the longer you have to improve your benefits.

Consequences of early retirement. Once the decision has been made to take early retirement, you should consider the consequences of early retirement. They come into play in all three pillars and are briefly listed below:

1st pillar

• AHV pensions can be drawn earlier. However, due to a lifelong reduction, this is not advisable.
• However, despite early retirement, you remain liable for AHV contributions. Early retirees are subject to the obligation to pay contributions for persons not in gainful employment. The amount depends on the assets and pension income. A sideline reduces the contributions to be paid in certain cases, because the early retiree is then not declared as "not gainfully employed". In the case of wealthy persons, it makes sense to have a secondary income so that their income and not their assets serve as the basis for assessment.

Pillar 2

• The entire BVG capital can be drawn upon early retirement or paid out as an annuity. Since no more savings contributions are paid in for the remaining years until ordinary retirement and due to the compound interest effect, the benefits are substantially reduced.
• If you draw your retirement benefits in lump-sum form, your pension foundation must observe special regulations regarding purchases into the PF. The following often applies: "If purchases have been made, the resulting benefits may not be withdrawn in capital form within the next three years.
• The entire retirement savings capital can be withdrawn upon early retirement. As a result, taxes have to be paid on the entire capital on the one hand and the private assets increase on the other. Higher private assets result in higher AHV liability. Both points can be mitigated by a further payment of the capital and splitting on two vested benefit foundations. In this way, the capital remains in the pension circuit until ordinary retirement and is therefore tax-free. Splitting the capital between two vested benefits foundations has the effect of breaking the tax progression when the capital is paid out, leaving more net capital.

Pillar 3

• You can only pay into pillar 3a if you earn a salary that is subject to AHV contributions. Thus, under certain circumstances, your early retirement means that you may no longer pay into pillar 3a in the years up to your regular retirement. You can pay into pillar 3a up to a maximum of 70 if you have a sideline job.
• Make sure that you draw on them in a staggered manner. If you open several accounts, you can withdraw the assets in different tax years.