Pension or capital? An important decision.
How does a pension fund work?
A pension fund is the vehicle for occupational benefits insurance (LOB), the second pillar of the Swiss pension system, and provides retirement, disability and death benefits. These are paid out in the form of retirement, disability or survivors’ pensions and supplement the benefits offered by the first pillar.
It is mandatory for all employees with a salary subject to OASI contributions to be insured in their employer’s pension fund. The employees’ contributions are deducted directly from their salaries. The employer must pay at least the same amount.
Capital withdrawal
What are the advantages and disadvantages?
Compared with a pension, a capital withdrawal offers you more financial flexibility.
This variant allows you to name your survivors as beneficiaries.
You have to invest and manage the capital yourself. In times of difficult stock markets or as you grow older, this can become a burden.
Once you have used up your capital, financial cutbacks are inevitable.
Pension
What are the advantages and disadvantages?
A big advantage of a pension is the security of regular income in a fixed amount without your having to manage the pension fund assets yourself.
You continue to benefit from a lifelong pension even after the retirement assets are used up.
If your partner is considerably younger than you or you have school-age children, they are covered by the survivors’ benefits provided by the pension fund.
The pension is taxable income.
As the pension amount remains the same for the rest of your life, you have to take the rising cost of living into account in your personal budget.
Is a mix of pension and capital withdrawal possible?
Yes, that is fundamentally possible. The percentage of the retirement assets you can withdraw as capital depends on the individual pension fund, but the minimum amount by law is 25 percent. If you purchase pension fund benefits, tax law prevents you from withdrawing them as capital in the following three years.
Depending on your personal situation, it is conceivable, for example, that your OASI pension and a sufficiently high partial pension from your pension fund could provide you with an ample basic income. The remaining retirement assets could then be withdrawn from your pension fund and, together with other funds, used to give you additional financial flexibility. A personalized consultation and comprehensive pension plan will show you the possibilities and constraints of such a solution.
When do I have to decide how I want to draw my retirement assets?
Many pension funds stipulate that you have to apply for a capital withdrawal three years in advance. You also need to observe this deadline if you plan on taking early retirement. So start thinking well in advance about what you want to do and make a well-considered choice.
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Our customer advisors can provide answers to selected FAQs. Just tell us what you want to know. We will be happy to help you.
Maxime B. (59), Fribourg
Should I withdraw capital to pay off my mortgage?
That’s an option, but you need to think it through carefully. After all, you still need to ensure that you have sufficient income after retirement, and a capital withdrawal will reduce the future pension you receive from your pension fund.
You also need to weigh up the tax implications, so it is certainly advisable to talk to a tax consultant. For example, if by paying off the mortgage the future imputed rental value is higher than the mortgage interest, the difference is taxable as income.
Annalise B. (64), Winterthur
What taxes do you incur on a capital withdrawal? And what tax is payable on a pension?
Like payouts from pillar-3a products, capital withdrawals from pension funds are taxed once only at a special rate. So, in order to minimize your tax burden, you should avoid making two withdrawals of this kind in the same year. You can calculate the one-off capital tax here.
The funds you withdraw are later taxed as assets and the interest paid on the invested funds as income. Asset depletion itself is tax-free, however.
If you draw a pension from your pension fund, on the other hand, you must pay income tax on it. The upside: the pension is paid out for as long as you live.
Maxime B. (59), Fribourg
Should I withdraw capital to pay off my mortgage?
That’s an option, but you need to think it through carefully. After all, you still need to ensure that you have sufficient income after retirement, and a capital withdrawal will reduce the future pension you receive from your pension fund.
You also need to weigh up the tax implications, so it is certainly advisable to talk to a tax consultant. For example, if by paying off the mortgage the future imputed rental value is higher than the mortgage interest, the difference is taxable as income.
Annalise B. (64), Winterthur
What taxes do you incur on a capital withdrawal? And what tax is payable on a pension?
Like payouts from pillar-3a products, capital withdrawals from pension funds are taxed once only at a special rate. So, in order to minimize your tax burden, you should avoid making two withdrawals of this kind in the same year. You can calculate the one-off capital tax here.
The funds you withdraw are later taxed as assets and the interest paid on the invested funds as income. Asset depletion itself is tax-free, however.
If you draw a pension from your pension fund, on the other hand, you must pay income tax on it. The upside: the pension is paid out for as long as you live.
