What is a life annuity in Switzerland?
The life annuity in Switzerland is an insurance which guarantees you a regular income for life in exchange for a capital paid to an insurance company. This additional income is paid to you even if the initial capital is exhausted, thus ensuring financial peace of mind.
The amount of the annuity depends on several factors, including the capital invested, your age, your gender and the options chosen, such as the return of capital to heirs in the event of death. For example, a 65-year-old person investing 100,000 CHF can receive an annual pension of around 3,832 CHF.
In Switzerland, life annuities benefit from an advantageous tax regime. Currently, 40% of the annuity is taxable as income. From 2025, this rate will be adjusted according to the yields on Swiss Confederation bonds, making the life annuity even more attractive from a tax perspective. (Source)
Is it interesting to invest in a life annuity?
Here are some points to consider:
Benefits :
- Guaranteed income for life : The life annuity provides you with additional income until your death, thus giving you peace of mind.
- Simplicity of management : Once set up, the annuity does not require special monitoring, unlike other financial investments.
- Spousal protection : It is possible to provide a reversion of the pension for the benefit of your surviving spouse, thus guaranteeing their financial security.
Disadvantages:
- Loss of capital : By opting for a life annuity, you give up the possibility of recovering your initial capital, which may limit your financial flexibility.
- Taxation : Part of the annuity is subject to income tax, with a taxable percentage varying depending on your age at the time of the first payment.
- Potentially lower yield : The annuity amounts may seem modest in relation to the capital invested, especially if you die prematurely.
Before committing, it is essential to assess your personal situation, your future financial needs and your wealth objectives. Do not hesitate to consult a financial advisor to determine if the life annuity corresponds to your profile and your expectations.
What are the different life annuities available in Switzerland?
Here are the main options:
1. Immediate life annuity: You pay a single lump sum and immediately start receiving a lifetime pension. This solution is ideal if you already have capital and want to benefit from it without delay.
2. Deferred life annuity: You build up capital through regular payments or a single payment, and the annuity begins at an agreed future date, often at retirement age. This option is suitable if you are planning your pension for the long term.
3. Life annuity with restitution: In the event of death, the unused capital is returned to the designated beneficiaries, after deduction of pensions already paid. This formula helps protect your heirs.
4. Life annuity without restitution: No return of capital is provided in the event of death, but the annuity paid is generally higher. This option maximizes your personal income.
5. Joint life annuity: The annuity is paid over the lives of two people, often spouses. When the first beneficiary dies, the survivor continues to receive the pension, thus ensuring financial security for the couple.
Each type of life annuity has specific advantages. It is therefore recommended to assess your needs and consult an advisor like Finwise Assurances to choose the solution best suited to you.
Life annuity and 3rd pillar
You can use products from the 3rd pillar to build up capital intended to finance a life annuity. For example, by making regular payments into a 3rd pillar account, you accumulate capital which, at retirement age, can be converted into a life annuity.
Payments into the 3rd pillar are deductible from your taxable income, which reduces your tax burden during the savings phase. In addition, life annuities from the 3rd pillar benefit from partial taxation, making this combination fiscally advantageous.
By combining the 3rd pillar and the life annuity, you provide guaranteed additional income for life, thus strengthening your financial security in retirement.
New for 2025: More flexibility on the taxation of pillar 3b life annuities!
From January 1, 2025, the taxation of pillar 3b life annuities in Switzerland becomes more advantageous. Currently, 40% of the pension is taxable. From 2025, this percentage will be adjusted according to the technical interest rate set by FINMA when the contract is concluded. For example, for a policy taken out in 2024, only 1% of the guaranteed annuity will be taxable.
This reform aims to align the taxation of life annuities with current investment conditions, thus offering better flexibility and tax advantages to policyholders.
If you are considering taking out a life annuity, now is the ideal time to take advantage of these new favorable tax conditions and contact us