Life annuity Switzerland: Is it really worth it?

Are you about to retire and thinking about what to do with your capital? Then you've probably already come across the term «life annuity». The promise sounds tempting: pay in once, collect for life.

But what is really behind it? And is an annuity in Switzerland worthwhile? In this guide, we take a look at the product honest do the maths and show you what alternatives are available.

What is an annuity?

An annuity is not an investment. It is an insurance policy. More precisely: insurance against longevity.

This change of perspective is crucial. After all, anyone who views an annuity as an investment will be disappointed by the return. Those who see it as insurance will be better able to categorise its benefits.

The principle is simple: you pay a one-off capital sum to an insurance company. In return, you receive a Lifetime annuity, no matter how old you get.

The capital for this typically comes from:

the Pension fund assets (after the capital withdrawal)
from Vested benefits accounts
or from free assets

Important to understand: The pension payment consists of two parts:

Guaranteed benefits, which are contractually guaranteed
Non-guaranteed surpluses, which depend on the economic success of the insurance company and may fluctuate

A significant part of your pension is economically the Repayment of your own capital.

A common confusion: the life annuity is not the same as the PF pension. You receive the pension fund pension directly from your pension fund, based on the conversion rate. A life annuity is a separate insurance product that you take out with an insurance company after a lump-sum withdrawal.

How does an annuity work in Switzerland?

The procedure is usually like this:

You withdraw your pension fund assets (or vested benefits assets) as Capital
You pay this capital as Single premium with an insurance company
From then on you will receive a Lifetime annuity

Providers in Switzerland

Life annuities are offered by various insurance companies in Switzerland. These include Helvetia, Swiss Life, Baloise, Pax and Zurich.

The most important key data

Depending on the provider, there are Minimum amounts for the single premium. You can choose whether the pension is paid out monthly, quarterly or annually.

An important decision when finalising the contract is the question of Restitution:

With refund: The remaining capital is paid out to your heirs in the event of your death. Sounds good, but generally reduces the current pension.
Without refund: The entire remaining capital goes to the insurance company if you die before the break-even point. Your heirs receive nothing.

Understanding the business model

In order to categorise an annuity correctly, it helps to understand the insurance company's business model. Insurers operate what is known as risk pooling: some customers die relatively early and the insurance company keeps their remaining capital. Another part lives longer than average and the insurance company pays out more than was paid in.

Statistically, the insurance company wins on balance. In purely financial terms, the product is only worthwhile for you if you have an above-average lifespan. This is the central point that many articles fail to mention.

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Calculating an annuity: How high is the annuity?

The amount of your annuity depends on several factors:

Age at the conclusion
Height of the Deposit amount
Elected Contract options (e.g. restitution)
Latest news Interest rate level
Elected Provider

Sample calculation

Let's take a man aged 65 with a deposit of CHF 500,000. Depending on the provider and the market situation, the guaranteed annual pension can be around CHF 20,000 to CHF 22,000. This corresponds to a conversion rate of around 4.0 to 4.4%.

Uncovering the implicit return

If life annuities are calculated back mathematically, the expected return for the customer is often only 0 to 2% per year. Why so low? Insurers calculate conservatively, administrative costs are incurred and safety margins are built in.

In comparison: A broadly diversified ETF portfolio historically has higher long-term expected returns than an annuity, albeit with considerable fluctuations in some cases.

Pension fund conversion rate vs. life annuity

This comparison is particularly revealing:

	Conversion rate
Pension fund pension (BVG mandatory)	Currently at least 6.8%
Pension fund pension (total pension fund realistic)	Typical 5-6%
Private annuity	Often only 3.5-4.5%

The difference is considerable. The pension fund conversion rate is politically influenced and therefore sometimes higher than what the market actually offers. For you as a reader, this means The PF pension usually beats the private life annuity by a considerable margin. This is one of the most important findings in this article.

Schwiizerfranke assessment: The break-even point

Back to our example: CHF 500,000 deposit, CHF 22,000 annual pension. When will you get your paid-in capital back? In purely mathematical terms after just under 23 years, i.e. with about 88 years. Only then do you «benefit» from the insurance component.

According to the FSO, the life expectancy of a 65-year-old man in Switzerland is currently around 20.5 additional years, i.e. approximately 85.5 years. For women, it's around 23 additional years. So you would have to live considerably longer than the average for the annuity to pay off financially.

Life annuity and taxes in Switzerland

The taxation of life annuities changed at the beginning of 2025. Previously, a flat rate applied: 40% of the pension was taxable. Today, the taxable portion of income depends on maximum technical interest rate as at 1 January of the financial year which is determined by the FTA.

Tax treatment

Component	Taxation	Example: Completion in 2025, CHF 10,000 annual pension
Guaranteed pension	Income component in accordance with the technical interest rate of the financial year	4% → CHF 400 taxable
Non-guaranteed surpluses	70% taxable	CHF 700 taxable (with CHF 1,000 surplus)

The technical interest rate may vary depending on the year of conclusion. The current rates are published by the FTA ongoing.

This actually makes life annuities more attractive from a tax perspective than, for example, interest income or dividends, which are fully taxed. However: The tax advantage alone does not compensate for the low return in most cases.

For tax purposes, it is also relevant in individual cases whether a Surrender value and how it is treated for wealth tax purposes in each canton. If in doubt, it is worth consulting your tax authority or a tax professional.

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Advantages and disadvantages of an annuity

Advantages	Disadvantages
Lifelong guaranteed pension	Loss of control over your capital
No investment risk for you	Low return due to conservative calculation (0-2%)
Simple, no ongoing effort	No flexibility for capital requirements
Low taxation (income share only)	Inflation risk: pension loses purchasing power
Protection for very long life	Remaining capital goes to insurance (without reimbursement)
	Hidden costs and insurer's margin
	Often only worthwhile with very high life expectancy

The core message: Life annuities are often only worthwhile if life expectancy is high. Otherwise, part of the capital paid in remains with the insurer instead of being paid out.

The risk of inflation is underestimated

An example makes this clear: you receive a pension of CHF 2,000 per month. With inflation of 2% per year, it looks like this:

After 10 years: real purchasing power approx. CHF 1’640
After 20 years: real purchasing power approx. CHF 1’340
After 30 years: real purchasing power approx. CHF 1’100

So in 30 years you will lose almost half of your purchasing power. Inflation protection for private life annuities in Switzerland is rare in practice and when it is, it is expensive.

For whom is an annuity worthwhile?

An annuity can make sense in certain situations. You should consider it if:

You a Very high life expectancy have (your family is typically very old)
You No interest in the investment and do not want to take care of it
You no heirs have or do not want to bequeath anything
You Maximum simplicity is important
You a Strong need for security have

Practical tip: Don't lock up at 65

Anyone considering an annuity should consider taking out one as late as possible. At 70 to 75 instead of 65. The reason: the insurance component, i.e. the protection against longevity, becomes significantly more favourable with increasing age. Statistically, the insurance company has to pay for less time and can therefore offer you a better pension. In the first few years after retirement, it is often easier to manage the capital yourself, for example with a Withdrawal plan with providers such as Descartes Finance - more on this in a moment.

When an annuity is not suitable

An annuity is more suitable not, if:

You Flexibility is important
You Consider heirs (keyword: surviving dependants' cover)
You are ready to invest your capital to manage yourself, e.g. with a Robo-Advisors or Online brokers
You good Financial knowledge have
You Inflation protection is important

The psychology behind it

Life annuities are sold by a powerful promise: «lifelong security». This is extremely attractive psychologically because many people are afraid of stock market fluctuations and capital erosion.

But it is rarely financially optimal. Fear is not a good counsellor for a decision that will affect decades. If you take the time to understand the alternatives, you will find a better solution in most cases.

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"Intelligent people learn from the mistakes of others".

We have compiled our top selection for you from all our tests and experience reports:

Alternatives to the annuity

1. maintain PF pension

The simplest alternative is not to withdraw any capital at all, but to take the pension fund pension. The conversion rate is BVG compulsory scheme currently at least 6.8%, typically 5 to 6% in the total PF. This is significantly more than the 3.5 to 4.5% of a private life annuity.

The pension fund pension almost always beats the private life annuity. That is perhaps the most important insight in this article.

However, the pension fund pension also does not provide access to capital and is not inheritable. The decision «pension or lump sum» from the pension fund is the upstream question and depends on your personal situation.

2. withdrawal plan

With the withdrawal plan, you withdraw your capital and continue to manage it yourself. You remain invested and withdraw an amount on a regular basis. There are two basic variants: the controlled capital consumption over 20 to 30 years or the Capital preservation, where you only take the yields.

A tried and tested rule of thumb is 4 per cent rule, which is based on the well-known Trinity study from the USA. The short version: If you withdraw 4% of your assets in the first year and adjust the amount annually for inflation, the capital in a broadly diversified, equity-heavy portfolio has historically often lasted around 30 years. This rule is not a guarantee and cannot be applied 1:1 to Switzerland, but it is useful as a guide.

The withdrawal plan clearly offers more return potential than the life annuity. The withdrawal amount and timing can be adjusted flexibly. And the remaining capital goes to your heirs, not to an insurance company.

Of course, there are also risks: a market slump at the beginning of the withdrawal phase is particularly painful because you have to sell shares at low prices. Experts call this the «sequence of returns risk». And many people find it difficult to make the mental switch from saving to spending. A liquidity cushion of 2 to 3 years helps to bridge crash phases without emergency sales.

You can find out more in our detailed guide to the Withdrawal plan in Switzerland. And with our Financial freedom calculator you can play out your own personal scenario.

A systematic withdrawal plan with professional management is offered, for example Descartes Finance with «Investing from 55». There you can leave your capital broadly invested and still control regular withdrawals.

Withdrawal plan vs. life annuity in comparison

Feature	Withdrawal plan	Life annuity
Flexibility	High, customisable at any time	None, fixed pension payment
Access to capital	Yes, available at any time	No, capital belongs to the insurance company
Transfer of assets	Remaining capital goes to heirs	Without refund: Residual capital expires
Return potential	Dependent on market, historically higher	Low (0-2% implied return)
Planning security	Depending on market and strategy	Guaranteed pension until the end of life
Inflation protection	Possible via equity share	Mostly not (nominal pension)
Effort	Requires knowledge or accompaniment	No expense after completion
Greatest risk	Capital utilised	Capital lost in the event of early death

3. mixed strategy (sensible for most)

Most people travel best with a Combination. One part as a PF pension for basic cover, which covers your fixed costs. Another part as a lump sum with a withdrawal plan for flexibility, potential returns and survivor protection.

Example: AHV and partial PF pension cover your basic needs. The withdrawal plan finances extras and is retained as an inheritance. Assets from the Pillar 3a can be included in the withdrawal plan after withdrawal.

The mixed strategy also solves the psychological problem. The guaranteed basis of AHV and PF pension gives you security. The withdrawal plan from the partial PF pension gives you control and flexibility. This means you don't have to make an all-or-nothing decision.

Decision support: annuity or withdrawal plan?

Our financial tips for 2026

"Intelligent people learn from the mistakes of others".

We have compiled our top selection for you from all our tests and experience reports:

Conclusion: Life annuity Switzerland - the best choice for very few people

An annuity in Switzerland is not a bad product, but for most people it is not a good option. not the best solution. The implicit return is low (0-2%), the capital is gone after graduation, and the whole thing only pays off financially when you get significantly older than average.

Anyone who has withdrawn their capital from the pension fund and is looking for a sensible strategy is generally better off with a Withdrawal plan or a mixed strategy of a pension fund pension and capital investment. This gives you flexibility, potential returns and the opportunity to pass on assets to your heirs.

Life annuities are justified as insurance against longevity, not as an investment. Anyone considering it should generally take it out as late as possible (from 70-75) and be aware of the alternatives beforehand.

This article was written in collaboration with Descartes Finance created. The editorial responsibility lies entirely with Schwiizerfranke. You can find out more about our collaboration with partners in our transparency guidelines.

FAQ: Frequently asked questions about life annuities in Switzerland

What is an annuity, simply explained?

A life annuity is an insurance product: you pay in capital once and receive a lifelong monthly pension in return. The capital then belongs to the insurance company.

How is an annuity taxed in Switzerland?

Since 2025, only the income portion has been taxed. The taxable portion depends on the technical interest rate as at 1 January of the year of conclusion. Example: For contracts concluded in 2025, the rate according to the FTA is 4%. Non-guaranteed surpluses are taxable at 70%. You can find the current rates at FTA.

Is an annuity in Switzerland worthwhile?

Rarely. An annuity only pays off if you live to be significantly older than statistically expected. In our calculation example, the break-even point is around 88 years. According to the FSO, the life expectancy of a 65-year-old man is around 85.5 years.

Which is better: an annuity or a withdrawal plan?

The withdrawal plan offers more flexibility, higher potential returns and capital for your heirs. In return, you bear the investment risk yourself. The life annuity offers lifelong security, but lower returns and no access to capital. For most people, a mixed strategy of a PF pension and a withdrawal plan is the best solution.

Can I convert my pension fund assets into an annuity?

Yes, you withdraw the pension fund assets as a lump sum and then pay them into an insurance company as a single premium. This is a separate step after the lump-sum withdrawal from the pension fund.

Which is better: a pension fund pension or a private annuity?

Almost always the PF pension. The statutory conversion rate (currently at least 6.8% in the BVG mandatory scheme, total PF typically 5-6%) is significantly higher than what private insurers offer (often only 3.5-4.5%). A private life annuity only makes sense if you have already withdrawn your capital and want to protect it afterwards.

About the author

Eric is the founder of Schwiizerfranke.com and certified IAF wealth advisor. Since 2019, he has been helping Swiss citizens to organise their finances comprehensibly, independently and efficiently.

📌 Note: This article is for information purposes only and does not constitute personalised investment advice.

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Life annuity Switzerland: Is it really worth it?

Table of contents

What is an annuity?

How does an annuity work in Switzerland?

Providers in Switzerland

The most important key data

Understanding the business model

Top recommendations for 2026

Calculating an annuity: How high is the annuity?

Sample calculation

Uncovering the implicit return

Pension fund conversion rate vs. life annuity

Schwiizerfranke assessment: The break-even point

Life annuity and taxes in Switzerland

Tax treatment

Our financial tips for 2026

Advantages and disadvantages of an annuity

The risk of inflation is underestimated

For whom is an annuity worthwhile?

Practical tip: Don't lock up at 65

When an annuity is not suitable

The psychology behind it

Our financial tips for 2026

Alternatives to the annuity

1. maintain PF pension

2. withdrawal plan

Withdrawal plan vs. life annuity in comparison

3. mixed strategy (sensible for most)

Decision support: annuity or withdrawal plan?

Our financial tips for 2026

Conclusion: Life annuity Switzerland - the best choice for very few people

FAQ: Frequently asked questions about life annuities in Switzerland

What is an annuity, simply explained?

How is an annuity taxed in Switzerland?

Is an annuity in Switzerland worthwhile?

Which is better: an annuity or a withdrawal plan?

Can I convert my pension fund assets into an annuity?

Which is better: a pension fund pension or a private annuity?

About the author

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