At a Glance: Annuity vs. Lump Sum
- The choice between a pension and a LPP capital is irrevocable once the payment is made
- The law guarantees the right to withdraw at least 25 % from the mandatory capital portion; most non-mandatory pension funds allow a withdrawal of 100 %
- Current conversion rate: 6.8 % on the mandatory part
- The remaining capital is transferable to the heirs; the annuity is not, except to a spouse or dependent children
- A hybrid solution (interest + principal) is possible and often recommended
- Each pension fund sets a mandatory notification period to request a lump sum — beyond that, payment is made automatically as an annuity
Calculator: pension or lump-sum LPP
Life-long LPP pension or pension generated by invested capital? Compare the two annual incomes, including cantonal tax.
What Does the LPP Provide for at Retirement?
By default, the LPP (2nd pillar) pays out your retirement savings as a life annuity. However, it's possible to withdraw at least 1/4 of the mandatory portion as a lump sum, provided you request it in advance and have your spouse's consent. Some pension funds go further and allow a full lump-sum withdrawal or a mixed solution. The choice is irrevocable and must be carefully considered.
Quick Comparison Table
| Criterion | Occupational pension | Capital LPP |
|---|---|---|
| Income guarantee | For life, with no market risk | None, it depends on the manager |
| Transfer to heirs | Limited to spouse/children according to the law | The remaining balance is transferred in accordance with the law of succession. |
| Exit taxation | No immediate tax | Separate Taxation at a Preferential Rate |
| Recurring Taxes | Taxed at 100 % as income each year | Taxable capital on assets, returns on income |
| Flexibility | Fixed and rigid | Total (purchases, refunds, donations) |
Option 1 : the LPP pension
Choosing the annuity means receiving a lifelong guaranteed income, paid out monthly starting at retirement.
Key Benefits of the Annuity
- Guaranteed income for the rest of your life: the payout depends neither on market fluctuations nor on your actual longevity.
- Family Protection: In the event of death, the surviving spouse generally receives a pension equal to 60 % of the original pension; children (up to age 18 or 25 if still in school) receive 20 %.
- Peace of Mind in Management: No investment risk, no investment decisions to make.
Disadvantages of the annuity
- Non-transferable capital: If the beneficiary has no spouse or dependent children who meet the legal criteria, the remaining balance goes to the pension fund.
- Ordinary taxation at 100 %: : Every franc you earn is added to your other income and is taxed at the full rate.
- No Flexibility: The amount is fixed at the outset, with no option for an early withdrawal.
- Decline in conversion rates : Pension funds are gradually lowering their conversion rates (particularly for the non-mandatory portion), which reduces the initial pension amount for future retirees.
Option 2: Lump-sum withdrawal
Benefits of Capital
- Total flexibility : You can use the funds however you like—to pay off a mortgage, help your children, start a business, and so on.
- Transferable estate : In the event of death, any unused principal will pass to your heirs in accordance with inheritance law.
- Favorable tax treatment upon withdrawal : Capital gains are taxed separately from other income, at a reduced preferential rate that varies by canton.
Disadvantages of Capital
- Risk of Capital Depletion : You need to carefully calculate your living expenses so you don't use up all your savings.
- Market Risks : To maintain purchasing power in the face of inflation, capital must be invested, with all the risks that entails.
What kind of return can I expect?
The return will depend on your risk tolerance and willingness to take risks. Generally, the target return is 2–3%. The main goal is to preserve retirement savings, while ensuring moderate growth.
Option 3: the mixed solution
- Use the annuity (OASI + part of occupational pension) to cover essential, unavoidable basic expenses such as housing, health insurance, food, and taxes.
- Withdraw the balance in capital to build an emergency fund, help loved ones, or generate supplementary income.
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Worked Example: Annuity or Lump Sum for CHF 600,000 in Retirement Savings
Let’s consider the case of a 65-year-old insured person with a BVG benefit balance of 600,000 CHF.
Scenario 1: Pure Annuity
- Gross LPP pension: approximately 34,800 CHF/year (or 2,900 CHF per month, conversion rate of 5.8 %)
- Taxed at 100 % at your canton's standard rate
- Lifetime warranty, no matter how long you live
Scenario 2: Pure Equity
- Gross capital: 600,000 CHF
- One-time withdrawal tax (Geneva, single man, age 65, no religious affiliation, 2025): 45,911 CHF, or about 7.65 % of capital
- Available net capital: approximately 554,089 CHF
- With a net return of 3 %/year and a withdrawal of 34,800 CHF/year (to remain comparable to the annuity), the capital lasts about 26 years old while supplies last
- Without any return, the same withdrawal depletes the net worth in just under 16 years old
What to do with your LPP capital after withdrawal?
Unlocking your 2nd pillar and Pillar 3a assets gives you complete freedom. But leaving several hundred thousand francs in a bank account earning close to 0% exposes you to two major pitfalls: erosion from inflation and the annual wealth tax.
Pour faire fructifier ce capital et générer un complément de revenu régulier tout au long de votre retraite, la stratégie doit s’adapter à vos objectifs et à votre résidence. De nombreuses solutions existent, du plan de revenus à la rente certaine.
- Hybrid income plans: Modern investment solutions specifically designed for retirement. They protect your initial principal through a guaranteed interest rate, while allowing your capital to grow through an investment component. This is the ideal solution for securing your cash flow and ensuring a steady income without taking unnecessary risks with your principal.
- Investment funds with planned withdrawals: Allows for capital growth targeting through market exposure (equities/bonds). This strategy requires a very rigorous selection of funds and the support of a wealth manager in order to manage volatility and mitigate risks during market downturns.
- Yield property: It allows the generation of monthly income through stable distributions (rental income) without suffering the management constraints of a direct physical property. It is an excellent tool for maintaining purchasing power and supplementing the OASI pension.
- International life insurance (Luxembourg / France): A key financial package for cross-border workers (G Permit) and dual nationals. It offers the enhanced security of Luxembourg’s "super privilege," international tax neutrality, and optimized estate planning.
Frequently Asked Questions
What is the deadline for notifying your pension fund of a lump-sum withdrawal?
The minimum statutory period is set at 3 months before the retirement date. However, the regulations of many pension funds require longer notice periods, ranging from 6 months to 3 years. It is therefore essential to consult your pension fund regulations as early as age 55 or 60 so as not to miss the deadline.
Do you need your spouse's consent to withdraw your 2nd pillar as a lump sum?
Yes, absolutely. If you are married or in a registered partnership, Swiss law requires the legalized signature of your spouse (before a notary or directly at the pension fund's headquarters, depending on the institution). This measure is designed to protect the spouse, as the lump-sum withdrawal modifies their rights to a future survivor's pension.
Can we change our mind after making a request?
No, the choice is irrevocable. Once the choice has been validated and the notice period has expired (or the benefit has been paid), you can no longer cancel your request or convert a lump sum into an occupational pension (BVG/LPP) annuity, and vice versa.
How is the lump-sum withdrawal of the 2nd pillar taxed?
The capital withdrawal is taxed separately from your other income, at a preferential and progressive rate (tax on lump-sum benefits). The overall tax bill depends on the amount withdrawn and your canton of residence at the time of the payout. Subsequently, the remaining net amount is included in your annual tax return under’wealth tax, and the generated returns are subject to’income tax.
What happens to the occupational pension (LPP/BVG) capital if I die prematurely after retirement?
- If you chose the annuity: Pension payments will cease. Only a spousal pension (60 % of your pension) or an orphan’s pension (20 %) will be paid to your legal beneficiaries. If there are no beneficiaries who meet the strict criteria of the LPP, the unused capital remains permanently vested with the pension fund.
- If you chose the capital: The balance of your capital (or the investments in which it is invested) becomes part of your estate and is transferred in full to your heirs in accordance with inheritance law.
Is it possible to combine an annuity and a lump sum?
Yes, it's the’mixed option. The LPP Act guarantees a withdrawal of at least 25 % of the mandatory portion of the lump-sum payment, but most pension funds allow you to choose the exact percentage (e.g., 50 % as a pension and 50 % as a lump sum). This is often the most balanced solution for covering fixed expenses with the annuity while maintaining flexibility and the ability to pass on assets through the lump-sum payment.