Pension or lump sum from your pension fund
The irreversible Pillar 2 choice: how the conversion rate works, what you may take as capital, how each option is taxed, and what happens to your partner in each case.
In one line: A lifelong income, a one-off capital sum, or a mix — one of the few retirement decisions that cannot be undone.
At retirement you decide how to take your Pillar 2 savings. This guide sets out the mechanics of each option and what actually separates them.
What you are allowed to take
The law guarantees a floor: you may demand at least a quarter of your mandatory retirement assets as a lump sum. Many funds go further and allow the whole balance to be taken as capital — that is a matter for the fund's own regulations, not the law.
Funds also impose notice periods for a capital withdrawal, often measured in years rather than months. If a lump sum is even a possibility, check that deadline long before you retire; missing it removes the option.
The pension
Your balance is multiplied by the conversion rate to produce an annual income for life. On the mandatory portion the legal minimum is 6.8%, so CHF 100'000 of mandatory capital yields about CHF 6'800 a year. On the extra-mandatory portion, funds set their own rate, typically lower.
What the pension gives you is the elimination of two risks: markets, and living longer than your money. It pays whatever happens.
What it costs you is flexibility and, in most cases, inheritance. A pension is not a balance you own; it is a claim. On death it does not pass to your heirs — it converts into whatever survivors' benefit the rules provide, which under the mandatory scheme is a 60% spouse's pension, subject to conditions.
The lump sum
You receive the capital and it is yours. You can invest it, repay a mortgage, or spend it. On death, whatever is left belongs to your estate.
In exchange you take on both risks the pension removed. The money has to last an unknown number of years, through unknown markets, and it has to be managed — which is a real ongoing task, not a one-off decision.
Tax: the genuine structural difference
This is where the two options diverge most sharply.
- The pension is added to your income and taxed at the ordinary rate, every year, for life.
- The lump sum is taxed once, separately from other income, at a reduced rate. After that only the returns it generates and the wealth it represents are taxed.
Neither is automatically cheaper. The answer turns on your canton, the amount, your other income and how long you live. Note also that the capital-withdrawal tax is progressive, so a large single withdrawal is taxed harder than the same amount spread across years.
The combination
Most funds allow a split, and in practice it is a common choice: enough pension to cover fixed, non-negotiable costs, with the remainder taken as capital for flexibility and inheritance. It converts the question from "which one" into "how much of each", which is usually the more useful question.
One trap to avoid
If you have made a voluntary buy-in, the corresponding capital cannot be withdrawn as a lump sum for three years without the tax deduction being reclaimed. Buy-ins and a planned capital withdrawal have to be sequenced together.
Common questions
Is the pension or the lump sum better?
There is no general answer. The pension buys certainty; the lump sum buys flexibility and inheritance. Which wins depends on your health, your other income, your canton and your family situation.
How much can I take as capital?
At least a quarter of your mandatory retirement assets, by law. Your fund's regulations may allow more, up to the full balance — and they set the notice period you must respect.
How is each option taxed?
The pension is added to your income and taxed annually at the ordinary rate. The lump sum is taxed once, separately, at a reduced rate that depends on your canton and the amount.
Can I change my mind later?
No. This is why the notice periods and the three-year rule after a buy-in matter so much: the decision is made once, under deadlines set years earlier.
Sources: BVG (SR 831.40) Art. 14 (conversion rate), Art. 19 (surviving spouse's pension), Art. 37 (lump-sum entitlement and fund regulations) and Art. 79b para. 3 (three-year lock after a buy-in); DBG (SR 642.11) Art. 38 (separate taxation of capital benefits); your pension fund's own regulations.
Educational information, not financial advice. Figures are for 2026 and may change.