Lump-sum-or-annuity-a-decision-with- significant-consequences-for-retirement income.

The question of how to withdraw retirement assets

To accommodate the new reality of low interest rates and progressive demographic aging in the best way possible, pension funds are taking advantage of the available options in the extra-mandatory area. A trend can be observed towards a reduction in conversion rates and technical interest rates in the extra-mandatory part of the occupational pension fund system and it looks likely to continue in the years to come. Future retirees must therefore expect lower retirement benefits.

Lump-sum withdrawal and 1e pension plans as instruments to lower risks for employers

The transfer of investment and longevity risks from pension funds to the insured can also be observed. To avoid longer-term pension obligations, new retirees – in particular those with higher incomes – are increasingly being obliged to withdraw part of their retirement assets as a lump sum. In addition, so-called 1e pension plans for the portion of earnings that exceeds CHF 126,900* are gaining in importance. Here, the insured can choose their own investment strategies and are not subject to the redistribution between active employees and retirees that runs counter to the system. Unlike other types of pensions, with the 1e plans, insured individuals bear all investment risks and usually receive a lump-sum payment upon retirement.

New working arrangements lead to pension gaps

Societal changes, such as the current increase in part-time work and other flexible working arrangements, including temporary employment contracts and freelancing, are putting the pension system to the test. The new Credit Suisse study uses various scenarios to show how yields, part-time work, maternity leave and early retirement have an impact on asset accumulation.

Regional differences in annual net income

Source: Credit Suisse study: Occupational pensions: Lump sum or annuity?

Lump sum or annuity? A decision with significant consequences on retirement income

Pension fund assets often make up the largest assets at the end of one's career. The question about whether this should be withdrawn as a lump sum or as an annuity is therefore an important one. The study examines how widespread lump-sum withdrawal is today, what factors are to be considered when choosing "annuity or lump sum" and how this irrevocable decision can have a dramatic impact on a retiree’s income, depending on place of residence and tax situation.

* As of January 1, 2019, the entry threshold (minimum annual salary) for 1e plans increases to 127,980 francs.