Annuity or Lump Sum?

The pension fund annuity is taxed at 100% as income (Art. 22 para. 1 DBG). It is added to other income (OASI pension, rental income, etc.) and taxed at the marginal rate. Example: CHF 34,000 pension fund annuity + CHF 30,000 other income = CHF 64,000 taxable income. The tax on the pension fund annuity alone is the difference between the tax on CHF 64,000 and the tax on CHF 30,000.

The lump-sum withdrawal is taxed separately from other income and at a reduced rate (Art. 38 DBG). The federal tax is 1/5 of the regular tariff. The cantons also apply reduced rates. For CHF 500,000, the tax ranges between 4% (Schwyz) and 10% (Basel-Stadt) depending on the canton. However, the capital must then be invested independently.

Prefer the annuity if: - High life expectancy (family tends to live long) - Security is more important than returns - No investment knowledge or interest - Married: spouse pension (60-70% upon death) Prefer the lump sum if: - Low tax rate at place of residence - Good investment knowledge, disciplined - Wealth should go to heirs - Conversion rate is low (below 5.5%) - Health risks (lower life expectancy)

The break-even shows after how many years the cumulative tax on the annuity exceeds the one-time lump-sum withdrawal tax. With a break-even after 7 years and a life expectancy of 20 years, you pay significantly more tax with the annuity. But taxes are only one factor. Security, investment returns, inflation, and spouse coverage also play a role.