Sinking conversion rates and the option of a higher regular retirement age are boosting the trend towards flexible retirement from working life. Different scenarios help you find the best solution.
Full retirement at regular retirement age is not always the best solution for employees and employers. For members, retirement often means a complete reorganization of their daily routines that may lead to tension in the family and could spoil the start of a carefree retirement. Problems may also arise in the company if the transfer of knowledge was poorly planned or approached too late. However, there are ways to address these challenges.
The first option is a workload reduction which affects the employee’s working hours and income. In this scenario, the pension fund does not pay any retirement benefits (pension/lump-sum withdrawal). The employer’s and employee’s pension fund contributions, which are calculated on the basis of the reduced salary, will continue to be paid. Moreover, the full pension assets are subject to interest.
Members have the option of continuing to insure their fully insured salary before the workload reduction. However, the workload may not be reduced by more than half, and continued insurance is limited until the regular retirement age stipulated in the regulations. It must be clarified whether the savings contributions on the salary reduction will be borne by the member or whether the employer will make a voluntary contribution.
Forward-looking entrepreneurs should consider all options and discuss them with all parties involved.
Depending on the details of such plans, older employees can be accompanied step by step into retirement and their successors can be established at the same time. This is also of benefit to the employers who can save up to 50% of the salary costs of the departing employee and can use parts thereof to pay the successor. If the savings contributions on the salary reduction are co-financed, this expenditure is a fraction of the saved salary. Forward-looking entrepreneurs should consider all of these options when skilled workers are about to retire and discuss them in good time with all parties involved.
Under this option, voluntary buy-ins into the pension fund are still possible. However, a 3-year lock-up period applies between buy-ins and the lump-sum withdrawal of retirement assets.
Retirement in stages
The second option is retirement in stages, which entails the payment of retirement benefits by the pension fund. Hence only the reduced salary is insured in the pension fund. Most tax offices and regulations permit a maximum of three partial retirement stages of at least 20–30% each. No more than two lump-sum withdrawals are permitted and the third withdrawal must take the form of a lifelong pension.
In contrast to the first option, this approach does not permit any tax-effective buy-ins into the pension fund. Moreover, the 3-year lock-up period between buy-in and lump-sum withdrawal during a partial retirement stage must also be observed under this option.
With employers increasingly complaining that they are unable to find well-trained and experienced professionals, it would be a logical step to employ older workers beyond retirement age. Since the BVG reform, continued insurance of the effective insured salary beyond the retirement age under the regulations (women 64 years / men 65) is still possible until the age of 69 (women) or 70 (men). Members must already have been insured in this pension plan before reaching the retirement age specified in the regulations.
Under this option, it is also possible to continue buying into the pension fund, i.e. even after reaching the retirement age stipulated in the regulations. This is subject to the condition that a buy-in shortfall existed when the retirement age under the regulations was reached.
In the case of all three options, contributions can be paid into pillar 3a, with the maximum working age beyond the regular retirement age being 69 (women) or 70 (men).
Retirement must be planned in good time, no matter what form it takes. Scenarios can be helpful in this respect. Analysing data and creating and planning scenarios, including the appropriate measures, requires time and expert advice. Successful consultants work together with network partners in the fields of financial planning, taxes and law. You should not leave the planning of your retirement any later than the age of 60, preferably as early as 55. In the best case, employers hold seminars to prepare their employees for this new phase in life.
Good resolutions should not be postponed. Take the time to discuss your retirement with your partner. Write down your goals and preferences and seek professional advice and guidance.