The most important decision of your retirement.
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Pension or lump sum: this is the most important financial decision of your retirement — and it is largely irreversible. The pension guarantees an income for life; the capital offers flexibility, control and inheritance. Here is how to decide with a clear head.
The two options at a glance
| Criterion | Pension (annuity) | Lump sum (capital) |
|---|---|---|
| Income | Guaranteed for life | Depends on your management |
| Flexibility | None | Total — you decide |
| On death | Partial pensions, capital lost | Remaining capital goes to your heirs |
| Taxation | Taxed 100% as income, every year | One-off reduced tax, then wealth tax |
| Inflation | Rarely indexed | Can be invested to compensate |
When does the pension make sense?
- You want zero management worries and a fixed income.
- Excellent life expectancy in your family.
- Little other income or wealth — security first.
When does the lump sum make sense?
- You want to protect your spouse and children: the remaining capital is inherited.
- You have other income (property, 3rd pillar, securities).
- Your fund’s conversion rate is low (below ~5.5%, the implicit return of the annuity falls sharply).
- You plan to leave Switzerland, where pensions may be taxed unfavourably.
The mixed option
The law guarantees you at least 25% of the mandatory part in capital (art. 37 LPP); many funds allow more, or a 50/50 split. A pension covering your fixed costs + capital for flexibility and inheritance is often the most robust setup.
Watch the deadlines
Many funds require you to announce a capital withdrawal months — sometimes years — in advance. Check your regulations early; a missed deadline can lock you into the annuity.
Frequently asked questions
Can I change my mind after choosing?
No. Once the pension starts or the capital is paid, the choice is final. Hence the importance of deciding early, with full information.
How is the lump sum taxed?
Separately from income, at a reduced rate that varies by canton and amount. Staggering withdrawals over several years can reduce the bill.
What if my assets are in a vested benefits account?
Then the question does not arise: a vested benefits account always pays out capital — and passes it on in full on death.
Your LPP assets are waiting for you.
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