Pension or lump sum? The most important decision when retiring
March 31, 2025
6 min read
arvy's Teaser: At retirement, you face a decision you make exactly once — and can never reverse: take your pension fund as a monthly pension, a lump sum, or a combination? We're talking hundreds of thousands of francs and decades of retirement. Banks recommend lump sum (they want to manage it). Insurance companies recommend pension (they benefit from longevity risk). Here's the honest comparison — with real numbers, the breakeven calculation, and a decision framework that fits your situation.
Irreversible
This decision is for life. Once made, no going back. Take your time, run the numbers, and don't decide under pressure. Most pension funds require you to register your choice 1–3 years before retirement.
The Starting Point: How Switzerland Decides
According to the latest federal statistics, around 40% of retirees choose the pension, 41% the lump sum, and 19% a combination. There's no standard answer — and that's exactly right, because the best choice depends entirely on your personal situation.
Pension vs. Lump Sum: Head-to-Head
| Pension | Lump Sum | |
|---|---|---|
| Payout | Monthly, for life | One-time, full amount |
| Taxation | As income, every year | One-time, reduced special rate |
| Longevity risk | Covered (PK bears risk) | You bear the risk |
| Investment risk | None (fixed pension) | You bear it (upside + downside) |
| Flexibility | None | Full freedom |
| Survivors | Spouse pension (60% of your pension) | Remaining capital inheritable |
| Inflation protection | Not guaranteed | Possible (depending on investments) |
| Wealth tax | None (no capital held) | Yes (capital is taxable wealth) |
The Breakeven Calculation: When Does the Pension "Win"?
The central question: How long do you need to live for the pension to outperform the lump sum? Here's a concrete example:
Example: Marco, 65, CHF 500,000 PK balance
Option A: Pension
Conversion rate: 5.3% (current average)
Annual pension: CHF 26,500
Spouse pension: CHF 15,900 (60%)
Tax: as income, approx. 15–20%
Annual pension: CHF 26,500
Spouse pension: CHF 15,900 (60%)
Tax: as income, approx. 15–20%
Option B: Lump Sum
Payout: CHF 500,000
Capital withdrawal tax: approx. CHF 35,000–55,000 (varies by canton)
Net after tax: approx. CHF 445,000–465,000
At 3% return: CHF 13,500/year income
Capital withdrawal tax: approx. CHF 35,000–55,000 (varies by canton)
Net after tax: approx. CHF 445,000–465,000
At 3% return: CHF 13,500/year income
Breakeven calculation (simplified)
Pension: CHF 26,500 × 20 years = CHF 530,000 total paid out
Lump sum: CHF 465,000 + 3% return over 20 years = approx. CHF 585,000 (incl. withdrawals)
Lump sum: CHF 465,000 + 3% return over 20 years = approx. CHF 585,000 (incl. withdrawals)
Breakeven: At 3% net return, the lump sum "wins" after about 18–20 years. The lower the return, the sooner the pension wins. At 0% return, the pension wins after about 17 years.
Why the conversion rate changes everything
The average conversion rate has dropped from 6.74% (2010) to 5.30% (2025). On CHF 500,000, that means CHF 7,200 less pension per year. Over 20 years, that adds up to CHF 144,000. The trend: still declining. This makes the lump sum increasingly attractive for many people.
The Pension in Detail
What speaks for it
🟢 Planning certainty: You know exactly what comes in every month. No investment decisions, no market risk, no stress. Ideal if you don't want to manage finances in retirement.
🟢 Longevity protection: No matter how old you get — the pension flows for life. If you reach 95, you've benefited enormously. The risk of running out of money is zero.
🟢 Spouse pension: Your spouse typically receives 60% of your retirement pension — also for life.
What speaks against it
🔴 No inflation protection: The pension is nominally fixed. At 2% inflation per year, your pension loses about 33% of purchasing power after 20 years. Pension funds aren't obligated to adjust for inflation.
🔴 Capital is gone: If you die early, the remaining balance doesn't go to your heirs. Your spouse gets the survivor's pension, but children and other heirs often get nothing.
🔴 Falling conversion rates: Conversion rates are expected to keep declining. Choosing a pension today locks in today's rate — but that's already much lower than 10 years ago.
🔴 More expensive tax-wise: The pension is fully taxed as income every year. The lump sum is taxed once at a reduced special rate.
The Lump Sum in Detail
What speaks for it
🟢 Flexibility: You decide how much you need and when. Withdraw less in good years, more when needed. Your money adapts to your life, not the other way around.
🟢 Inheritance: Whatever remains belongs to your heirs. With the pension, payments stop after both you and your spouse pass away.
🟢 Return potential: Well-invested capital can generate significantly more over 20–30 years of retirement than the pension. At 3–4% net return, the capital can even be preserved.
🟢 Tax advantage: One-time capital withdrawal tax (typically 5–15% depending on canton and amount) versus annual income tax on the pension.
What speaks against it
🔴 You carry the risk: If markets crash or you invest poorly, your capital shrinks. Nobody guarantees it will last.
🔴 Discipline required: The capital needs to last decades. The temptation to spend too much too early is real.
🔴 No longevity protection: If you reach 95 and the capital is depleted, you have a problem.
🔴 Wealth tax: The capital is subject to wealth tax, and returns are taxable income. This becomes relevant with large sums.
The Combination: Best of Both Worlds
You don't have to choose one or the other. Many pension funds allow a mix — and it's often the smartest solution.
The strategy: Secure base costs, take the rest as capital
Take enough as a pension so that your fixed living costs (rent, health insurance, food, insurance) are covered together with AHV. Take the rest as capital — for travel, flexibility, inheritance, and as a buffer.
Example: Marco's fixed costs are CHF 4,500/month. AHV provides CHF 2,400/month. Gap: CHF 2,100/month = CHF 25,200/year. At a 5.3% conversion rate, he needs about CHF 475,000 as pension. The remaining CHF 25,000 he takes as capital.
For couples, there's another option: one partner takes the pension (secures the base), the other takes the lump sum (flexibility, inheritance). This way you benefit from the tax advantages of both options.
The Staggered Withdrawal Strategy
The biggest tax lever at retirement is staggering withdrawals across multiple years. Because capital withdrawal tax is progressive (the higher the amount, the higher the rate), spreading withdrawals saves massively:
Example: CHF 500,000 capital, Canton of Zurich, single
| Strategy | Tax (approx.) | Savings |
|---|---|---|
| All at once | CHF ~55,000 | — |
| Split across 2 years (CHF 250k each) | CHF ~42,000 | CHF ~13,000 |
| PK + 3a + vested benefits across 3 years | CHF ~32,000 | CHF ~23,000 |
Indicative figures. Exact amounts depend on canton, municipality, marital status, and denomination. For precise calculations, use the federal tax calculator (estv.admin.ch).
The optimal sequence:
1️⃣ Year 1 (e.g. age 63): Withdraw 3a accounts in stages (e.g. two accounts in one year)
2️⃣ Year 2 (e.g. age 64): Withdraw vested benefits account + more 3a accounts
3️⃣ Year 3 (e.g. age 65): Withdraw PK capital
Political development: Higher taxes on lump-sum withdrawals?
The Federal Council's "Relief Package 2027" proposes higher federal taxes on capital withdrawals — partly to fund the 13th AHV pension. The proposal is not yet in force (as of February 2026) but could take effect from 2027 or 2028. If you're planning a lump-sum withdrawal, keep this on your radar. Silver lining: married couples may in future be taxed individually on capital withdrawals — which could be cheaper than today's joint taxation.
Decision Framework: What Fits Your Situation?
Lean towards pension if:
✅ You don't want to manage investments in retirement
✅ You have good life expectancy (longevity runs in the family)
✅ Your PK's conversion rate is attractive (>5.5%)
✅ You have little other wealth and need security
✅ You have no spouse or your spouse has their own good pension
Lean towards lump sum if:
✅ You have investment experience or an asset manager
✅ It's important that capital passes to your heirs
✅ Your PK's conversion rate is low (<5%)
✅ You have other secure income sources (AHV, rental income, partner)
✅ You want flexibility (travel, property, unexpected expenses)
Lean towards combination if:
✅ You want to secure base costs AND keep flexibility
✅ You want to optimise taxes (pension + staggered capital withdrawal)
✅ Couple: one partner takes pension, the other takes capital
Your Timeline: 5 Years Before Retirement
5 years before: Check your PK rules. What withdrawal options does your fund allow? Is there a capital restriction? What's the conversion rate?
3–4 years before: Make final PK buy-ins (observe the 3-year lock-up!). Stagger your 3a accounts if not done already (one account per withdrawal year).
2–3 years before: Run a tax simulation. What's the tax impact of pension, lump sum, and combination? Consider location optimisation (cantonal differences in capital withdrawal tax are massive).
1 year before: Register your capital withdrawal with the PK (check the deadline in your fund's rules!). Define your investment strategy for the capital. Apply for your AHV pension.
Retirement year: Execute staggered withdrawals. Launch investment strategy. Plan your tax return carefully.
Your Checklist
☐ Read PK rules: which withdrawal options are available?
☐ Check your PK's conversion rate (mandatory + supplementary)
☐ Check your PK's funding ratio (is the fund healthy?)
☐ Calculate breakeven: how many pension years needed?
☐ Tax simulation: pension vs. lump sum vs. combination in your canton
☐ 3a accounts staggered (one account per withdrawal year)
☐ Final PK buy-ins made in time (3-year lock-up)
☐ Capital withdrawal registered with PK on time
☐ Investment strategy defined for withdrawn capital
☐ AHV pension applied for
Invest Your Capital Wisely. With arvy.
If you choose the lump sum, you need a solid investment strategy. With arvy, you invest your withdrawn capital in quality companies — alongside experienced investors who put their own money in the same place. No minimum investment, no hidden fees.
Disclaimer: This article is for general information purposes and does not constitute personal financial, tax, or pension advice. Figures shown are indicative and may vary by canton, PK rules, and personal circumstances. For retirement planning, we recommend independent professional advice. arvy is a FINMA-regulated asset manager.
BVG conversion rate (mandatory): 6.8%. Average conversion rate 2025: 5.30% (VZ VermögensZentrum). 13th AHV pension: first payout December 2026. As of February 2026.
