Deferred retirement. Why it pays off.
If you are in good health and enjoy your work, you may want to work past normal retirement age. How deferred retirement works and what the concrete financial advantages look like.
Defer your AHV pension and benefit from a larger pension
As part of the flexible options to draw a pension under the Old Age and Survivors' Insurance (AHV), insured can organize their retirement according to their own needs and desires. Pillar 1 regulations allow you to defer your AHV pension for between one and five years even after you reach normal retirement age.
What is the financial benefit? If you defer your AHV pension and postpone your retirement, you will receive a lifelong percentage-based supplement when you finally do start drawing your pension. This supplement is based on the length of the deferral period and increases for every month that you do not draw your AHV pension. However, in order to benefit from an increased pension, you must defer drawing your AHV pension for at least a year. If an insured decides to draw their pension before this period has expired, the amounts deferred since the start of their entitlement are paid out retroactively, without any supplement or interest.
As of 2023, an insured who defers their retirement by one year will receive a 5.2% supplement on their monthly AHV pension. A five-year deferral will result in a supplement of 31.5%. For a maximum pension of CHF 2,450 per month, this translates into a supplement of CHF 772. In the case of the minimum pension, it would mean a supplement of CHF 386.
Deferring the AHV pension: How the pension increases per deferred year
Starting point: Normal AHV retirement age (64/65), maximum AHV pension of CHF 2,450.
Source: AHV information centre, Credit Suisse
Register for deferred retirement
You must register for your AHV pension deferral within one year of reaching normal retirement age. A form known as a deferral declaration is required. To generate this form, check the yes box when asked if you would like to defer your pension withdrawal in the "Flexible annuity on retirement" section of the Old-age pension application form. You do not have to definitively indicate the length of your deferral period in advance. Once the minimum period of one year has elapsed, you may request your AHV pension on a monthly basis. To do so, you must submit the Cancellation of old-age pension deferral form.
Gainfully employed persons must continue to make AHV contributions during the deferral period. There is however an exemption of CHF 1,400 per month, or CHF 16,800 per year. For incomes greater than this, the normal AHV, IV, and income compensation contributions will be deducted. However, these contributions will not affect the amount of your retirement pension. They are solidarity contributions only. You are no longer required to make unemployment insurance contributions.
Deferral of your BVG pension
Pension deferral is also possible for the employee benefits insurance. However, according to the Federal Act on Occupational Retirement, Survivors' and Disability Pension Plans (BVG), pension funds are not required to offer deferment as an option, and thus it has to be provided for in the respective regulation. Only in such a case can a gainfully employed person request to remain insured with the pension fund until the end of gainful employment, at the latest until the age of 70. Be sure to contact your pension fund in a timely manner in order to determine if it is possible to defer pension fund benefits.
Deferring your BVG pension also has financial benefits. Individual pension funds continue to collect contributions during the deferral period, resulting in the accumulation of additional retirement capital. Furthermore, the conversion rate used to calculate your pension will most certainly be higher, due to the shorter payment period. When your employment relationship is terminated, the benefits paid – in the form of a pension, lump sum, or a combination of the two – will be higher than normal retirement.
Deferred retirement in Pillar 3a
If you are employed, you may defer withdrawal of retirement benefits from your tied pension provision and continue to make tax-privileged contributions for a maximum of an additional five years. As soon as you are no longer gainfully employed, all Pillar 3a pension capital must be withdrawn. The balance is paid out as a single lump sum and taxed at a reduced rate separate from normal income. In order to save money, we recommend opening several Pillar 3a accounts from which you can make staggered withdrawals over several different tax years prior to your planned retirement.
When deferred retirement is worthwhile
Whether deferred retirement makes sense will depend on a variety of factors. The greater your life expectancy, the more sense deferred retirement makes – as long as your employer allows for this. In addition to your health, your personal tax situation also plays a role. A pension deferral, whether of your government pension or employee benefits insurance, makes particular sense for high earners who plan to work past normal retirement age: By starting to draw your pension only once you have finished working, you can avoid the higher tax burden that comes from combining income and pension.
