Many employees consider retiring before reaching the official retirement age. But as an employer, it’s not simply a matter of waving goodbye—especially since occupational pension plays a crucial role. Whether it’s early retirement or flexible retirement (partial retirement), it’s important for employers to understand the relevant rules, agreements, and reporting requirements.
Early retirement or flexible retirement? How it works for ITP and SAF-LO
Early retirement
As the name suggests, early retirement means an employee chooses to end their employment fully before reaching normal retirement age. Both the ITP and SAF-LO pension systems allow occupational pension withdrawals from the age of 55, but there are some key aspects to be aware of:
- ITP 1 (Defined contribution)
Can be withdrawn from age 55. The earlier the withdrawal, the lower the retirement payments will be, since the pension capital will have had less time to accumulate and will be paid out over a longer period.
- ITP 2 (Defined benefit)
The pension is based on final salary, so early withdrawal significantly affects the pension amount. The employee usually has fewer earning years and possibly a lower salary than at the end of their career, which can reduce the pension. After age 62, ITP 2 premiums can be paid up via Alecta.
- SAF-LO (Defined contribution)
Mainly applies to blue-collar workers and also allows withdrawal from age 55. The employee applies directly via Fora, and the employer does not need to report the retirement, since the pension capital is allocated over a longer payout period. Partial withdrawals are also possible under SAF-LO.
Flexible retirement
Flexible retirement (also referred to as partial retirement under ITP) is a collectively agreed solution combining additional pension contributions with the option to reduce working hours prior to retirement. It offers more choice for employees and flexibility for employers, particularly in light of rising general retirement ages.
As an employer, you pay an additional pension premium if flexible retirement is included in your collective agreement. This is handled like regular pension premiums—premiums are calculated based on reported salaries and included in your pension invoice. When an employee is granted partial retirement, the saved pension capital is used to offset the income loss from reduced working hours.
- For ITP 2, special handling is required: two salaries must be reported to Collectum—both before and after the reduction in working hours. Retirement pension is based on the pre-reduction salary, while most other insurances are based on the post-reduction salary.
- For ITP 1 and SAF-LO, only the salary after the reduction is reported, as both systems are defined contribution. This means the premium is fixed in advance and invested on an ongoing basis. The employee receives partial retirement premiums each month and does not require separate compensation when working hours are reduced.
The right to apply for partial retirement is regulated by the collective agreement, but this does not mean the employer is obliged to approve every application. If partial retirement is deemed to negatively impact operations—for example, due to specialist roles, knowledge transfer, rare expertise, or other business-critical functions—negotiation with the union may be required to find a workable solution for both parties.
At Azets we have full knowledge of the regulations and handle the reporting for partial retirement. We guide employers through the process when an employee applies to take out flexible retirement.
Summary of the differences between flexible and early retirement
|
|
Flexible retirement |
Early retirement |
|
What? |
Option to reduce working hours before retirement |
Ending employment entirely before retirement age |
|
When? |
End of working life (typically after age 60) |
From age 55 |
|
Funding |
Extra premiums via collective agreement |
No extra compensation; pension is withdrawn early |
|
Impact on Pension |
Maintains pension accrual and provides flexibility |
Lower pension due to early withdrawal |
Avoid the pitfalls
When it comes to pensions—especially before the normal retirement age—even small mistakes can have major consequences for both employees and employers. By outsourcing your payroll management to Azets, you gain access to expertise in occupational pensions and reporting. We ensure that all data is reported correctly and on time, helping you avoid unnecessary interruptions, costly corrections, or employee concerns.
Want to learn more about how Azets can help you manage the retirement process effectively and securely? Feel free to contact us!
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