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Pension or lump-sum payment? A combination as a solution

Pension or lump-sum payment? A combination as a solution

17.07.2018 |

You have an important decision to make before your retirement: Do you opt for a pension or a lump-sum payment? The benefits of both options.

Those who retire still have the choice: Do I want to draw my pension fund assets as a lifetime pension or as a one-off lump-sum payment? The Federal Council wanted to restrict the latter option but parliament has opposed this move. This is the reason we have decided to now present the benefits of both options. And we can tell you something right away: the interesting aspect is not only the question of “either/or”, but rather most importantly the decision of whether to opt for “both ... and ...”.

Benefits of a pension

If you opt for a pension, you will have a regular and secure source of income for the remainder of your life. The level of the pension is dependent on the assets you have saved and the conversion rate. Here, no wealth tax is levied, but rather only income tax. In the event of your death, your spouse receives 60% of the pension, with the rest going to the pension fund. This option is therefore especially suited for security-conscious individuals and for people with spouses considerably younger than themselves.

Benefits of a lump-sum payment

You can draw at least a quarter of your saved pension fund assets as a one-off lump-sum payment – with Tellco pkPRO and Tellco pkFLEX, it is even possible to withdraw your assets in full. You can use this money flexible, for example to repay a mortgage. Theoretically, you can also generate better returns with the assets than would be possible in the pension fund – with the required financial expertise. The capital can also be freely bequeathed to your surviving dependants. This option is therefore especially suited for unmarried individuals and for people with a spouse older than themselves.

Benefits of combining the two options

In most cases, combining a pension and a lump-sum payment represents the best solution: for example, you can have half of your saved pension fund assets paid out, while the remaining half is used for the payment of a lifetime pension. This allows you to combine the benefits of both options. Philippe Muntwyler, our Head of Advisory Services and a certified Swiss Federal Financial Planner, says: “I would recommend that security-conscious individuals draw part of their assets as a pension, thus enabling them, together with the OASI, to cover fixed costs such as housing expenses, food, health insurance and taxes. Financial/pension planning is invariably worthwhile.” Working couples can also draw a pension from one of their pension funds and request a lump-sum payment from the other.

What you need to bear in mind

Compare all of the available options in good time and thoroughly. Find out about the conditions of your pension fund and those of your partner’s pension fund: Which offers the better conversion rate? How high are the widows’/widowers’ pensions? Who has the higher life expectancy? How secure are both pension funds? If you want to make a lump-sum withdrawal, you need to report your intention in good time – some pension funds require a decision up to three years before your retirement. You should thus start with your planning at an early stage. Do you have any questions in this regard? Our financial planners will be happy to advise you.

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