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Swiss Pension Fund Monthly pension or lump sum payment?

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egardless whether you retire early or not, you are spoilt for choice with respect to your Swiss pension fund. Would you prefer a monthly pension? Or would you prefer to withdraw all your savings in a lump sum? Perhaps a mixture of both? It’s an important one-off decision to make, and there are pros and cons on both sides. This article highlights the most important aspects when it comes to decision-making.

Choosing a lump sum payment means taking action well in advance Should the person insured wish to make a lump-sum withdrawal, pension funds are legally obliged to pay out at least a quarter of the savings. However, many pension funds offer more flexible plans with the possibility to withdraw half or even all of the savings. The pension fund

needs to be notified of the lump sum withdrawal between three months and three years prior to retirement. Missing out on this deadline means you have “chosen” a monthly pension, and it isn’t possible to alter the choice once retired. A lump sum payment gives you flexibility and is tax-efficient in the long run A lump sum withdrawal of the pension fund savings gives you more flexibility to adapt your income to your personal needs and goals. For example, you can allow yourself a higher income in the first years after retirement, perhaps to go traveling or play golf, and reduce your income at a later age when your personal financial needs may have decreased. Some people may want to pass their wealth on to their children

and therefore choose to live just from the interest. Others may want to spend everything and therefore allow themselves a more generous budget. Moreover, since a monthly pension is fully taxable, the lump sum payment often proves to be the most tax efficient solution in the end. The lump sum payment is taxable at withdrawal, but at a favorable tax rate. On the other hand, it opens up possibilities of tax planning which could lead to significantly lower taxation in the years to come. However, in an international context, the relevant double taxation treaties (DTT) should be consulted. Situation of wife, partner and other dependants In general, one’s wife and children are better off with a lump sum payment. They inherit any unspent savings. If you choose a monthly payment, the surviving spouse receives a curtailed

SWITZERLAND

Monthly pension and the lump-sum payment compared Monthly Pension

Lump Sum

Income security

High

Dependent on the investment strategy and how long after retirement one actually lives

Level of income

Depends on pension fund plan

Dependent on the investment strategy and whether or not capital is being depleted

Financial flexibility

Low

High

Surviving spouse

Reduced pension (usually 50–70%)

Dependent on the investment strategy and whether or not capital is being depleted

Surviving children

In general no payments to adult children

Unused capital goes to the inheritents Disponition by will possible

Taxes

Income is fully taxable

One-off taxes on withdrawal Income tax dependent on investment strategy

Hello Switzerland for Expatriates, Summer Edition 2012  

Hello Switzerland is written by expats for expats living in Switzerland. Designed mainly for English speakers, the magazine contains feature...

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