Taking a lump-sum payment upon retirement is a huge mistake
Government
supplemental
benefits will skyrocket
Dr. Roman von Ah
Economics
45% of all individuals who received pension benefits for the first time in 2024 opted for a lump-sum payment; another 19% chose a combination of a pension and a lump sum. These figures reveal more than just a shift in individual preferences: they mark the beginning of a social policy problem whose costs will only become apparent over time. While Switzerland debates the AHV, healthcare costs, government spending, and disability insurance, one risk remains largely overlooked: if more and more capital is withdrawn from the 2nd pillar, the pressure on supplementary benefits will increase later on.
45% of all individuals who received pension benefits for the first time in 2024 opted for a lump-sum payment; another 19% chose a combination of a pension and a lump sum. These figures reveal more than just a shift in individual preferences: they mark the beginning of a social policy problem whose costs will only become apparent over time. While Switzerland debates the AHV, healthcare costs, government spending, and disability insurance, one risk remains largely overlooked: if more and more capital is withdrawn from the 2nd pillar, the pressure on supplementary benefits will increase later on.
State supplementary benefits
Supplementary benefits by the Government will explode
This poses the threat of a silent redistribution: Individual freedom in drawing down retirement savings today will lead to collectively financed follow-on costs tomorrow. While those who draw down their retirement savings are formally responsible for them, in reality this responsibility ends when the assets are depleted and the entitlement to supplemental benefits begins.
Added to this are clear conflicts of interest. For pension funds, a lump-sum withdrawal is convenient because it removes longevity risks from the balance sheet. For insurance companies, banks, and asset managers, it is attractive because pension capital is transformed into private assets that can be managed and used for advisory services. Financial service providers earn nothing from a pension fund annuity; by contrast, they often earn returns on invested capital over many years. For individual policyholders, on the other hand, the lump-sum withdrawal is attractive because it promises maximum control over the funds, inheritable benefits, and short-term flexibility.
This is precisely where the tragedy of the commons lies: Each individual group acts in a way that is understandable and rational from its own perspective. The pension fund reduces risks, the financial services provider expands its business volume, and the insured person appears to gain autonomy. Overall, however, a collective safety net is being eroded, and the costs of repairing it will later fall on the general public.
The political debate largely overlooks this connection. Precisely for this reason, it is important to view the sharp increase in withdrawals from the second pillar not only as a matter of personal choice, but also as a future financing risk for the welfare state.
We are very pleased that the NZZ has taken up this topic and given us space to share our thoughts in the “Opinion & Debate” section through an op-ed. We reproduce the published text in full below; you can also find a PDF copy of the original article in the appendix.
NZZ-TRIBÜNE (5. August 2026)
Capital Withdrawal as an Individualized Risk
Op-Ed by ROMAN VON AH
Lump-sum withdrawals from the second pillar are becoming the norm. In 2024, 45 percent of new retirees had their retirement savings paid out exclusively as a lump sum, while another 19 percent opted for a combination of a pension and a lump sum. The trend is rising sharply. A lump-sum withdrawal offers flexibility, freedom to make choices, investment opportunities, tax advantages, options for passing assets on to heirs, and the freedom to fulfill one’s wishes. Who would want to be against freedom? A lump-sum withdrawal is good because it provides flexibility; flexibility is good because it creates choices; and choices are good because they allow for individualized solutions. Without quantification, these statements are meaningless.
Flexibility is only useful if it’s backed by a sound strategy for withdrawals, investments, and risk management. Financial flexibility is only helpful if it doesn’t result in excessive spending, poor investment choices, or expensive asset management. Investment opportunities only matter if, after accounting for costs, taxes, inflation, and market risks, there remains a risk-adjusted excess return. Passing on wealth requires that the capital not be depleted by living expenses, illness, or long-term care. The question is not whether drawing down capital has theoretical advantages. Of course it does. Rather, it is how realistic it is to secure these advantages over decades. Drawing down capital means providing for yourself for the rest of your life.
A pension fund annuity addresses this question collectively. It pools longevity, investment, and biometric risks. A lump-sum withdrawal individualizes these risks. Pension planning becomes asset management, an annuity becomes an investment account, and a lifetime income stream becomes a withdrawal plan. This can work; however, the demands for financial knowledge, discipline, low costs, realistic return expectations, and reserves are enormous. Added to this are conflicts of interest. For pension funds, a lump-sum withdrawal is attractive because longevity risks disappear. For financial service providers, it is attractive because pension capital becomes assets under management. An advisor earns nothing from a pension; from invested capital, however, they earn over many years. This does not make the advice bad, but it does mean that the incentive structure requires explanation.
Those who spend their retirement savings or invest them poorly and later find themselves destitute do not fall into oblivion, but rather into the system of supplemental benefits. These benefits must not become an implicit safety net for individual decisions to withdraw capital. Otherwise, from a sociopolitical perspective, the advantages are privatized and the disadvantages socialized. As long as capital is available, the individual enjoys freedom; once it is depleted, the AHV, supplemental benefits, the cantons, the federal government, and—once again—younger generations foot the bill. Not every lump-sum withdrawal is wrong. With substantial retirement assets and a solid pension foundation, a (partial) withdrawal is a viable option. Lump-sum withdrawals are acceptable—but not at the expense of lifelong basic social security.
The simple proposal: Withdrawals of retirement capital, if permitted at all, should be more strictly limited; (partial) withdrawals should only be allowed if the lifetime pension is sufficiently high. A specific threshold could be set at 50,000 francs per year. Those who do not have a sustainable pension should not be allowed to convert their retirement capital into a private investment portfolio, the failure of which would later be financed by the general public.
The second pillar provides lifelong income in old age. The lump-sum payout is marketed as a matter of personal choice. In reality, it is a gamble on financial literacy, stable markets, low costs, discipline, good health, and a not-too-long lifespan. People are free to make such bets on their own, but they should not be subsidized by a collective pension system. A lump-sum withdrawal upon retirement is not a smart alternative to a pension; it is a major mistake. It should not be promoted, but rather restricted.
