If you are dreaming of stopping work before the statuary retirement age of 65, you may have to rethink your strategy — at least, that’s what the Swiss government wants you to do.
Even in the best of times, retiring early is not (in terms of the pension you will receive) a profitable undertaking — unless, of course, you are independently wealthy and have assets to live happily ever after.
If you’re not, expect lower pensions.
For instance, if you retire one year early (age 64), your first-pillar (AHV/AVS) pension will be reduced for life by 6.8 percent.
And if you retire two years early (age 63), the shortfall will be 13.6 percent.
This means that on a maximum monthly AHV/AVS pension of 2,520 francs, you will lose 171 francs in the former case and 342 francs in the latter.
(Of course, most people in Switzerland also have a second-pillar pension, and many a third-pillar one as well, which soften the blow of the loss of the AHV/AVS income due to early retirement).
The shortfall could deepen
Currently, about 11 percent of working population is opting for early retirement, and the government wants to deter others from following suit.
That is why it seeks to make early retirement less appealing by striking those who want to leave employment early where it hurts them most — in the wallet.
Instead of imposing a penalty of 6.8 percent for retiring at 64, this amount could go up to 7.5 percent.
And anyone who retires at age 63 could be hit by a 15-percent cut.
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Why does the government want to take such drastic measures?
It all comes down to money.
Switzerland’s population is aging and people live longer — an encouraging development which nevertheless presents a challenge.
According to Avenir Suisse, a think-tank for economic and social issues, “the number of retirees in Switzerland will grow by 61 percent by 2035, while the working population will only increase by 7 percent in the same period.”
This means that the AHV/AVS spending will increase sharply over the next 10 years, but not enough money will flow into the system in a way of social security contributions from the working population to continue financing the scheme in a sustainable manner.
As a result, if no measures are taken in the meantime, the AHV/AVS is expected to show a deficit of 2.5 billion francs within five years.
That is why the Swiss government wants to encourage the population to work beyond the statuary age of 65, while also discouraging early retirements.
According to minister Elisabeth Baume-Schneider, who is in charge of the Federal Social Insurance Office, “we will look into the reduction rates for early pension payment.”
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‘Far from ideal’
Not everyone in Switzerland is on board with Baume-Schneider’s proposed penalties.
For instance, Gabriela Medici, who is responsible for social issues at the Swiss Trade Union Federation, thinks the proposal is not just a scare tactic, but the Federal Council could really resort to increasing the penalty for early retirement.
This move, however, would be “far from ideal.”
“There are people with low incomes who can no longer find work and are forced to take early retirement,” she said, adding that the proposed measure “would penalise these people.”
What’s the next step?
It is not a done-deal yet, but a proposal on Baume-Schneider’s ‘to-do’ list.
“At the moment, this is a review mandate, and no concrete measures have been presented to the Federal Council regarding early retirement,” said spokesperson Harald Sohns.
On the positive side, the government doesn’t intend to increase taxes to compensate for the AHV/AVS shortfall.
In its recent press release, the Federal Council said it “decided not to introduce new funding sources, such as a financial transaction tax, an inheritance tax, or a real estate capital gains tax” to pay for the pension scheme.
