Pension or lump-sum payment?

When drawing Pillar 2 funds, you can choose between a lump-sum payment, a monthly pension or a combination of the two. Our tips help you make the right decision.

The decision for or against a lump-sum payment from the pension fund has major implications for you and your family. When weighing up the pros and cons, you should consider your health and family circumstances as well as your assets, mortgages, taxes and the contractual provisions of your pension fund.

As a rule of thumb: Living costs and basic needs should be covered by AHV and the pension fund. Any amounts in excess of this can be taken in a lump sum.

Advantages of an annuity pension

A pension provides you with a secure monthly income for the whole of your life. And when you die your spouse receives a survivor’s pension. However, this usually totals only 60 percent of the original pension.

Good to know: There is no inflation protection, which means that the pension fund does not have to adjust the pension in line with inflation. And the pension fund payments are taxable as income.

Advantages of lump-sum withdrawals

If you opt for a lump-sum payment, you will have greater scope for your individual financial planning. You will be able to invest your funds freely, but this also entails a certain risk in the event of fluctuations in earnings. And when you die the unused funds pass on to your heirs in full, which is not the case for an annuity pension.

Good to know: Lump-sum withdrawals are taxed at a reduced rate.

Weigh up the advantages and disadvantages of a lump-sum withdrawal and ask your pension fund about your options in detail, and about the deadlines involved. You will usually have to apply for a lump-sum withdrawal from your pension fund a few months or even years before retirement.