Swiss citizens that opt to retire at the age of 58 could see a pension shortfall of up to 23 per cent over their lifetime, according to analysis by Credit Suisse.

For people in the middle-income bracket, drawing the AHV pension and employee benefits insurance pension two years before the normal retirement age (64 for women and 65 for men) in a reduction in income of approximately 14 per cent over the course of a person's life.

Those that opt to take their benefits even earlier at 58 can expect to see a shortfall of as much as 23 per cent. In view of declining pension fund benefits, the path to early retirement will likely become more difficult again in future, the study concluded.

Despite this, the Credit Suisse study found that 8 per cent of women and 10 per cent of men draw their AHV pension early (at most two years in advance), it is far more common to receive pension fund benefits early (women 43 per cent; men 46 per cent). In terms of the age at which a person describes themselves as retired, just over half of people retire at least one year before the normal AHV retirement age (women 47 per cent; men 56 per cent).

Early retirement is particularly widespread among single people, people with higher incomes, and people living in French-speaking Switzerland. However, nearly a quarter of early retirements are involuntary, with employees with a lower level of education or a lower household income more often affected by involuntary early retirement.

In their study, Credit Suisse economists use different scenarios to show how the choice of when to retire affects pension income derived from AHV and employee benefits insurance. For a man in the middle-income bracket (e.g. a teacher), drawing his AHV and pension fund benefits two years early results in a lifelong reduction in pension benefits from CHF 49,823 to CHF 42,742 per year (CHF 4,151 to CHF 3,562 per month) – a reduction of 14 per cent compared with drawing the AHV and pension fund benefits from the age of 65.

If he defers drawing his AHV pension until the age of 65, the pension fund benefits are still reduced by 8 per cent if drawn from the age of 63 and by 23 per cent if drawn from the age of 58. Furthermore, these reduced pension fund benefits and, ideally, a bridging pension or the consumption of capital (private assets, Pillar 3a) must finance living expenses until AHV benefits are drawn. In addition, AHV/IV/EO contributions must continue to be paid until the normal AHV retirement age. These contributions total between CHF 496 and CHF 24,800 per year, depending on pension income and assets. When considering early retirement, it is essential to take the financing of these contributions into account.

Furthermore, Credit Suisse economists' simulations show that the percentage pension shortfalls in lower and higher income brackets do not vary much. When giving up work at 63, a person in the higher income bracket (e.g. a lawyer) will see a fall in his life-long pension income of about 9 per cent from the time he draws his AHV pension at the age of 65. If he retires at the age of 58, his pension income will fall by approximately 24 per cent. For lower income brackets (e.g. a retail worker), the figures are -8 per cent and -21 per cent, respectively.

The starting position differs, however: A retail worker retiring at the normal retirement age of 65 could expect to receive an annual pension of CHF 38,112, which equates to around CHF 3,200 per month. If he retires at age 63, his annual pension would be CHF 35,137, and if he retires as early as age 58, it would be CHF 30,062 – equivalent to a pension of CHF 2,500 per month. In addition, the pension fund pension of approximately CHF 9,000 per year would need to last until the AHV pension can be drawn. Without additional personal savings, early retirement would likely remain a dream in this scenario, Credit Suisse stated.

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