Glossary

Lump Sum vs. Annuity

With a Lump Sum withdrawal, pension fund assets can be paid out in whole or in part as a one-off amount at retirement; with an Annuity, the capital is converted into a lifelong monthly pension. The choice is generally irrevocable and has significant implications for taxation, inheritance, and provision over a long life.

At a glance

A lump sum withdrawal is taxed separately at a reduced rate, distinct from other income (DBG Art. 38).

The lifelong annuity provides protection against longevity risk; with a lump sum, the investment and longevity responsibility lies with the individual.

Many pension funds allow withdrawal of up to 100 per cent of retirement savings as a lump sum; the regulations may specify different proportions (BVG Art. 37).

Frequently asked questions

01 Annuity or lump sum: which is the better choice at retirement?

The decision depends on health, life expectancy, asset situation, taxation, and family circumstances. The annuity provides lifelong security without investment risk; the lump sum offers flexibility and inheritability, the ability to pass assets on to heirs. Many people choose a combination to benefit from both. As the choice is generally irrevocable, early and independent planning is advisable.

Part of the topic

Vorsorge & Pensionierung

Sources: Eidg. Steuerverwaltung (ESTV) · Bundesamt für Sozialversicherungen (BSV) · Systematische Rechtssammlung (fedlex)

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