Retirement is harvest time: Now you are entitled to benefits for which you have been saving for decades. The 2nd pillar, the occupational retirement provision, contains the largest part of many working people's personal assets. If they have high incomes, their retirement savings capital can even exceed the million mark under certain circumstances. The question as to how this sum of money should be taken out quickly arises – as a monthly annuity or as a one-off capital payment. Or, if need be, as a hybrid form? It is important to take time to make this decision, as it will have a long-term impact on your financial situation during retirement and cannot be reversed.
With a capital withdrawal, you can have part or even all of your pension fund assets paid out in one go upon retirement. According to new pension statistics from the Federal Statistical Office, more people chose a lump sum (41 percent) than an annuity (40 percent) for the first time in 2023, while 19 percent opted for a hybrid form.
The law stipulates that your pension fund must pay out at least 25 percent of the money you have saved as a one-off capital payment if you wish. Depending on the regulations of your pension fund, you may be able to claim a larger portion or even the entire sum directly. You can now manage this money independently. Most people reinvest the amount paid out, as you can expect a maximum of CHF 2,520 per month from the old-age and survivors' insurance (AHV) alone as a single person and a maximum of CHF 3,780 per month as a married couple – too little for most people to live on.
If you decide to withdraw your pension fund assets as capital, you benefit from maximum flexibility. You can invest the money as you wish – reduce your mortgage or fulfill your dreams. However, you also bear the risk of your investment decisions. An additional benefit: In the event of your death, the remaining capital is included in your estate; this means that your surviving spouse, for example, can continue to dispose of it, and other heirs such as children can also benefit from part of the remaining capital. The prerequisite is that they are beneficiaries under matrimonial and inheritance law. A capital withdrawal can also be attractive from a tax perspective: The money paid out is taxed once at the time of withdrawal – separately from other income and at a preferential rate (usually 5 to 15 percent). This is why you pay less tax on a capital withdrawal than on an annuity in the long term. There is currently a political debate regarding whether larger sums of pension fund capital paid out in the future should be taxed at a higher rate – a decision on this has not been made yet.
Greater freedom also means greater risks. While the annuity from the pension fund is guaranteed to be paid out until the end of your life, you may run out of money at some point with a capital withdrawal, depending on the investment vehicle you choose. For example, this may be the case because you made the wrong investment decision, spent too much or underestimated your longevity. And if you have made purchases in the last three years before retirement, they will be taxed in full when you withdraw your capital. If you are not a financial specialist yourself, you absolutely need comprehensive, serious advice to protect yourself from making the wrong decisions. There is also a lot to consider in terms of taxes, inheritance law and planning financial flows.
This option is generally suitable for people who are more financially literate, value flexibility, want to achieve a higher return and are prepared to take a higher risk to do so. They are often people who have other sources of income, such as their own savings or investments, a property, rental income or inheritance, private annuities, foreign annuities, etc. Good to know: Depending on the pension fund, the registration period for capital withdrawal is up to three years. Anyone who misses this deadline can no longer request a capital payment. So contact your pension fund in good time and find out about the modalities.
With an annuity from a pension fund, the capital you have saved is converted into a lifelong annuity. Mandatory components (in accordance with the statutory minimum under the BVG) and super-mandatory components (everything in excess of this) are generally calculated using different conversion rates. They make up the total annuity. In principle, it is guaranteed in full until the end of your life. Only if your pension fund experiences financial difficulties could you, as a retired person, have to contribute to the restructuring of the fund by reducing your pension.
The biggest advantage of annuity from a pension fund is security. You are guaranteed a regular income for life, even if you live to be 100 or more. This can be an argument for anyone who considers their life expectancy to be rather high, e.g. because they are in good health at the time of retirement and longevity runs in their family. In the vast majority of models, you receive a predetermined fixed amount, regardless of the development of the economy or political decisions. With an annuity, you can enjoy a carefree life without having to worry about investing your pension fund balance.
The benefits for surviving dependents are the decisive disadvantage of drawing a pension, since they are often lower. In the event of your death, your widow or widower will usually receive only a percentage of the pension, at least 60 percent. And if you die young and do not leave behind a spouse or partner, the rest of your capital goes to the pension fund and not to your heirs. Depending on the regulations, entitlement to a widow's pension may also lapse in the event of remarriage. Anyone drawing a monthly annuity must also be aware that 100 percent of it is taxed as income. Inflation must also be taken into account since it reduces purchasing power over the years.
Annuity from a pension fund tends to be suitable for people who value planning security and want to take few risks. They are people who want to be sure that they will receive the same income for the rest of their lives.
Professional advice is also highly recommended if you wish to draw an annuity from a pension fund. For example, a specialist will examine whether you can still afford your residential property after retirement, how you can protect your spouse if you suddenly die and how you can optimize your taxes together with you.
This compromise option combines the advantages and disadvantages of both models. You withdraw part of your pension fund balance as a lifelong annuity and have the rest paid out as capital. The annuity secures your livelihood into old age. And you can use the capital paid out to fulfill special wishes and invest it flexibly. Here too, you should do the following: Seek comprehensive advice in the form of financial planning or a retirement strategy; doing so is important and valuable to ensure that you can make the best use of your available funds, realize tax benefits and enjoy your retirement.
Which solution is best for each individual depends on many factors, as well as on personal circumstances and plans for the third phase of life. That's why it is so important to get well-informed in advance, gain an overview of your entire financial situation and seek expert advice early enough – ideally in your early to mid-50s.
| Annuity from a pension fund | Capital withdrawal | |
| Security of income | Guraranteed income for life | Depending on the investment strategy and market developments, there is a certain degree of risk. |
| Amount of income | Depends on the conversion rate of the pension fund (which is guaranteed when you begin drawing a pension and is not changed). | Depends on the investment strategy and investment market performance |
| Flexibility | Fixed annuityper month | Freely plannable capital withdrawal(s) |
| Cost-of-living adjustment | Depends on the financial possibilities of the pension fund, usually no full compensation for inflation | Cost-of-living adjustment guaranteed depending on the choice of capital investments (e.g. through higher interest income) |
| Taxes | Annuity fully taxable as income | One-off taxation at a privileged rate (separate from other income) upon capital withdrawal, after which the capital is taxed as assets and the investment income is taxed as income. |
| In the event of death: Benefits for surviving spouses | Widow or widower receives a share of the annuity – at least 60 percent. | Existing capital is included in the estate – the spouse can benefit from it in full. |
| In the event of death: Benefits for other surviving dependents |
Children who are studying receive a children's pension. Depending on the pension fund, a pension for a cohabiting partner is possible. |
Beneficiary status possible under consideration of inheritance law |
