Pension or lump-sum withdrawal Deciding between a pension and a lump-sum withdrawal

There can be advantages to withdrawing capital saved in the pension fund.

by UBS Insights 17 Apr 2017

Insured members of a pension fund have the right to receive some of their retirement assets in the form of a one-time payment. Legal requirements allow the withdrawal of at least one-quarter of the compulsory pension assets as a lump sum. Some pension funds allow half or even all of the assets to be withdrawn in this manner. Find out about the advantages and disadvantages of the various forms of withdrawal well before your retirement. Many pension funds require you to comply with notice periods of several years in this regard.

Flexibility or security

A pension fund will transfer you a fixed pension every month for the rest of your life. In contrast, if you make a lump-sum withdrawal, you can invest the money yourself. This gives you more financial freedom, but is associated with greater risks.

Health as a factor

If you have health problems, it may make sense to opt for a lump-sum withdrawal as this will allow you to secure your unused pension assets for your heirs. However, if you assume a long life expectancy, pension payments could be the better option.

Tax aspects

Pension payments from a pension fund are taxed at the normal income tax rate. Lump-sum withdrawals are taxed at a reduced rate, which depends on your place of residence and the amount of the lump-sum withdrawal. Tax rates vary by canton.

A simple rule of thumb

There is a simple rule of thumb to remember: Every CHF 1,000 in monthly pension requires around CHF 200,000 in pension assets. A pension is generally a better choice up to pension assets of CHF 500,000 – at least if there are no other assets or income.

The decision in favor of or against a lump-sum withdrawal from the pension fund therefore depends on multiple personal factors.