Draw a lifelong pension – but pay tax on the full amount

Statistics show that most retirees decide in favour of a pension. Together with AHV/AVS benefits, the occupational pension is designed as a replacement income for the salary lost at the end of gainful employment. One of the advantages of a lifelong retirement pension is the actuarial longevity risk which is borne by the pension plan, not the pensioner. Moreover, retirement pensions are generally adjusted for increases in the cost of living. The joint administration board, the highest governing body of a pension institution, decides each year whether and to what extent pensions are to be adjusted. One of the disadvantages of a pension is the fact that, at the pensioner's death, any capital not used for pension payments vests with the pension plan. However, if the pensioner has a surviving spouse, a spouse's pension – generally 60% of the full pension – will be paid. Another disadvantage is the fact that pension payments are fully taxed. A pension is basically the best option for persons who are in the lower income bracket and have a relatively high life expectancy and a relatively low tax burden.

Pension and lump-sum capital – to cover a variety of needs

Regardless of pension plan regulations, a member can ask to receive one quarter of his retirement savings capital in the form of a single lump-sum settlement. Other solutions are possible provided they are stipulated in the regulations. By combining a pension with a lump-sum capital settlement, a pensioner can secure a regular income to cover his basic needs and dispose of a capital amount, to make a one-time payment to reduce his mortgage for example.

Readily disposable capital – as long as it lasts

A cash settlement basically extinguishes all a member's corresponding claims against his pension plan. If the capital is invested appropriately, a cash settlement may be a good way to optimise one's personal financial situation. It can be invested to match personal needs. And the balance at the pensioner's death will be passed on to his heirs. Cash settlements are subject to income and property tax. But tax is only assessed once, and at a reduced rate.

Applications for lump-sum settlements are irrevocable

Pensioners who wish to draw their benefits in the form of a pension need not explicitly inform their pension plan. Conversely, those who wish to cash in a portion of their benefits have to apply within the time-limit set by pension plan regulations. A pension plan may require members wishing to cash in a portion of their benefits to file a written application as early as three years before retirement date. Once filed, an application is extremely difficult to revoke after the time-limit has lapsed.