At the time of retirement you can decide how to draw your accumulated retirement assets. You primarily have the choice between a single lump-sum payment and a retirement pension that is paid to you monthly until the end of your life.
A combination of lump-sum withdrawal and retirement pension is often possible as well. The exact options depend on the regulations of your pension fund. Important to know: pension funds can restrict the lump-sum withdrawal, but in practice they rarely make use of this.
The amount of your retirement pension depends on your accumulated retirement assets and the conversion rate of your pension fund. Put simply, the annual retirement pension results from multiplying your retirement assets by the conversion rate (in per cent).
The lifelong retirement pension of the pension fund covers not only the monthly pension payments until the end of life, but also so-called «entitlements» for your surviving dependants. In the event of death, your spouse or partner is entitled, depending on the regulations of the respective pension fund, to a lifelong widow’s or widower’s pension. For children, orphan’s pensions are as a rule paid until the age of 25 at most. Usually the widow’s or widower’s pension amounts to 60% and the orphan’s pension to 20% of the retirement pension.
Pension funds can also provide benefits that go beyond the statutory minimum requirements. In the event of an early death, an additional death benefit capital can be paid out, for example.
Although the amount of your retirement pension is guaranteed in principle, pension funds can increase their pension benefits under certain conditions – for example to compensate for inflation. A sound financial situation of the pension fund is decisive for this. In 2024, around 14% of pension funds planned an increase of their pension benefits.
Have you ever wondered why we as the electorate have already voted several times on lowering the statutory conversion rate of 6.8%? And why you find a different conversion rate, often between 4.0% and 6.0%, on the insurance certificate of your pension fund?
The explanation is that the statutory conversion rate of 6.8% only applies to the so-called mandatory retirement assets. For most insured persons, however, these make up only part of the total retirement assets. The part going beyond that is referred to as supplementary retirement assets. It arises among other things from higher savings contributions or better pension fund benefits than required by law. For this part, the pension fund can set the conversion rate itself.
Some pension funds apply the so-called «splitting model». The retirement pension is then calculated separately: the statutory conversion rate of 6.8% applies to the mandatory retirement assets, and the rate set in the regulations to the supplementary retirement assets.
More widespread, however, is the so-called «umbrella model», in which the entire retirement assets are converted into a retirement pension using a uniform conversion rate. At the same time, the pension fund checks in the background, by means of a so-called shadow calculation, whether the statutory minimum benefit is reached. The insured person always receives at least the benefit prescribed by law.