Pension Fund: Annuity or Capital? The Definitive Comparison
February 23, 2026
6 min read
Retirement brings together the two biggest financial decisions of your life: annuity or lump sum? And how much do you actually need?
Most Swiss residents massively underestimate the second part. This guide tackles both — with concrete numbers, retrospective scenarios, and a clear action plan for every age.
Contents
Annuity or lump sum: The starting position
At retirement, you typically have the choice (in most pension funds): a lifelong annuity, a one-time lump-sum withdrawal, or a combination. The decision is irreversible — and depends on factors you cannot predict with certainty today: How long will you live? How will the markets perform? What will happen with your partner?
The annuity
You receive a fixed monthly amount — for life. The conversion rate (Umwandlungssatz) determines how much: the BVG mandatory minimum is 6.8% (on CHF 100,000 in capital: CHF 6,800/year). The supplementary portion (Überobligatorium) can be lower (4.5–5.5%). The annuity is protected like AHV income — it keeps coming regardless of market movements.
The lump sum
You receive the entire amount as a single payment. You pay a capital withdrawal tax on it (5–12% depending on the canton). After that, the money is yours — but you also carry the investment risk and the responsibility for planning your withdrawals.
Retrospective 2015–2025: Who came out ahead?
Concrete example: Peter, age 65, with CHF 500,000 in his pension fund and a conversion rate of 6.0% (realistic for the supplementary portion).
Scenario A: Chose the annuity
Peter has received CHF 2,500 every month since 2015 (CHF 30,000/year). Over 10 years: a total of CHF 300,000 received. No stress, no risk, no effort. If Peter lives to 85: CHF 600,000 received in total — more than his original capital. If he dies at 70: only CHF 150,000 received, and the remaining capital is gone.
Scenario B: Lump sum, invested wisely
Peter withdraws CHF 500,000 (after tax ~CHF 460,000), invests broadly with 0.7% costs. At approximately 8% return (2015–2025 was a strong decade): after 10 years, despite withdrawing CHF 30,000/year, he still has roughly CHF 560,000 in his portfolio — more than he started with. Plus CHF 300,000 withdrawn.
Scenario C: Lump sum, invested poorly
Peter places CHF 460,000 with an expensive wealth manager. 1.5% fees, conservative profile (too many bonds), unfortunate timing. After 7 years: less than he began with. → Why fees are the silent killer
The lesson
It wasn't the annuity vs. lump sum decision that was the problem — it was how the capital was invested. Lump sum + poor wealth management = the worst of both worlds.
Who benefits from the annuity — and who from the lump sum
Choose the annuity if:
- High conversion rate (above 6%) — that's a guaranteed return you can't match risk-free in the market
- Long life expectancy runs in your family
- You have no interest in managing investments — not now and not later
- The spousal pension for your partner is adequate (check the pension fund regulations!)
Choose the lump sum if:
- You're prepared to invest it consistently and at low cost
- You want to pass the capital on to heirs (with the annuity, it's gone when you die)
- Your conversion rate is below 5.5% (then the annuity is unattractive)
- You have a solid investment and withdrawal plan
The sweet spot: A mixed strategy
For most people, a combination is optimal: enough annuity to, together with AHV, cover the basic costs (rent, health insurance, food). Take the rest as a lump sum and invest it — for extras, travel, gifts to children, and as a safety buffer.
Concrete example: if your basic costs are CHF 5,500/month and your AHV pension is CHF 3,675, you need CHF 1,825/month from the pension fund. Take enough annuity to cover that gap — roughly CHF 365,000 at a 6% conversion rate. Everything above that amount gets withdrawn as a lump sum and invested. This gives you a guaranteed floor of income while preserving flexibility and inheritance potential with the remainder.
Important: the deadline for choosing between annuity and lump sum varies by pension fund. Some require notice 3 years before retirement, others accept it up to a few months prior. Check your pension fund's regulations early — and don't assume you can change your mind at the last minute.
The 5 biggest mistakes with a lump-sum withdrawal
1. Leaving the money in a savings account
Every month of inaction costs you. On CHF 500,000 at 2% inflation: CHF 833/month in lost purchasing power. Invest within 3 months — not "when the market looks better."
2. Blindly trusting a bank advisor
The bank advisor recommends the product most profitable for the bank. Always ask: "What are the total costs per year?" Anything above 1% is too much. → Fee Comparison Calculator
3. Investing too conservatively
Many retirees allocate 80% to bonds. At current interest rates, that's a losing strategy after inflation. Even at 65 you need an equity allocation of at least 50–60% — you still have a 20+ year investment horizon.
4. Investing everything at once — without a plan
Statistically, lump-sum investing outperforms in 66% of cases. But psychologically: if the market crashes immediately afterwards, the damage is immense. Better: spread it over 6–12 months. Marginal return difference, significantly less stress.
5. Having no withdrawal plan
You need a clear plan: How much do you withdraw per year? From which part of the portfolio? What happens in a crash year? → See further below: the 4% rule as a starting point.
Calculate your retirement budget: The Budget Calculator shows you exactly how much you need in retirement — and where the gap is.
CHF 300k+ from your pension fund? You don't need to download a new app. Buy the arvy Equity Fund (Valor 130614478) directly through your existing bank account — UBS, ZKB, Raiffeisen, Swissquote. No new account needed.
How much do you need in retirement? The honest calculation
The three pillars of your retirement income
1st Pillar (AHV): Maximum CHF 2,450/month (individual) or CHF 3,675/month (couple, capped). Average: approximately CHF 1,900/month.
2nd Pillar (Pension Fund): Target with AHV: 60% of last salary. Reality: many people only reach 40–50%.
3rd Pillar (Private): Pillar 3a, savings accounts, securities. This part closes the gap.
Concrete example
Peter and Maria, both 65. Last combined salary: CHF 180,000/year.
| Item | Monthly |
|---|---|
| Rent (3.5-room apartment) | CHF 2,200 |
| Health insurance (both) | CHF 1,100 |
| Food & household | CHF 1,200 |
| Transport | CHF 300 |
| Insurance | CHF 200 |
| Leisure & travel | CHF 1,500 |
| Other | CHF 500 |
| Total | CHF 7,000 |
AHV (CHF 3,675) + pension annuity (CHF 2,500) = CHF 6,175/month. Gap: CHF 825/month = CHF 9,900/year.
Calculating the pension gap
Formula: Monthly costs − (AHV + pension annuity) = gap. Peter's gap: CHF 9,900/year. Required portfolio at 4% withdrawal: CHF 247,500. Sounds manageable — but someone with a CHF 3,000/month gap needs CHF 900,000.
Calculate it yourself
The Budget Calculator computes for couples: both incomes, taxes by canton, married tariff. The FIRE Calculator shows how much wealth you need and when you'll reach it.
What you can do at every age
Age 30–40: The golden accumulation phase
Maximise Pillar 3a (CHF 7,258/year), set up a savings plan. CHF 500/month over 30 years at 7%: CHF 567,000. → Compound Interest Calculator
Age 40–50: The optimisation phase
Check for pension fund buy-in gaps (tax-deductible — often the best "return" available). Increase your savings plan if possible. Create your first retirement budget.
Age 50–60: The decision phase
Decide: annuity or lump sum? Create a detailed budget. Build a liquidity reserve (12–24 months). Start planning your withdrawals.
Age 60+: The implementation phase
Execute the plan. Set up the bucket strategy (2–3 years of expenses in cash, 5–7 years in conservative investments, the rest in equities). Make sure your partner understands everything and has access to all accounts. Write the "what-if" letter that explains what to do with the money if you're not around. Enjoy retirement — you've planned ahead.
One final thought: retirement planning is not a one-time event. Review your budget and withdrawal rate annually. If markets have been strong, consider topping up your cash bucket. If health costs are rising faster than expected, adjust your spending accordingly. The plan should be living, not carved in stone.
Don't forget
The single most common regret among retirees isn't "I spent too much" — it's "I didn't start planning early enough." Wherever you are in the timeline above, starting today is better than starting tomorrow. The maths doesn't care about your age — only about the years you have left.
Two paths to arvy — choose yours
Path 1 — arvy App
Savings plan from CHF 1/month
Ideal for monthly investing. Set up the app, create a standing order, done.
Set up savings plan
Path 2 — arvy Equity Fund
Buy through your bank
Keep your existing account. Enter the Valor, buy. No new account needed.
Equity Fund → Valor 130614478
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Budget Calculator → · FIRE Calculator → · All fees →
Budget Calculator → · FIRE Calculator → · All fees →
This article was written by Team arvy. Last updated March 2026.
Disclaimer: This article is for general informational purposes and does not constitute personal investment, tax or legal advice. For individual questions, please consult a qualified professional. arvy is a FINMA-supervised asset manager with a KAG licence. Legal Notice
