Pension or lump-sum?

Throughout your career, considerable amounts have been accumulated in your pension fund. As retirement approaches, you must decide whether you wish to receive this asset as a lifetime pension or as capital, in whole or in part. There is no right or wrong choice; this decision not only influences the amount and security of your income but also your financial flexibility, tax burden, and the financial security of your loved ones. Each situation is unique and depends on your personal plans.

Our dedicated wealth solutions team is here to help you make this complex choice. Don't hesitate to contact us for personalised advice.

Pension

The pension offers the guarantee of a regular income until your death, thus freeing you from any worries about managing your assets. However, one disadvantage to consider is that this amount is added to your AVS pension, thus increasing your total taxable income. Furthermore, your surviving spouse or partner will generally receive only 60% of your pension after your death.

Moreover, pensions do not guarantee a constant purchasing power, as an annual inflation of 1.5% combined with the absence of pension adjustment can reduce its value from 500 today to 4300 in ten years, and to 3700 in twenty years. Additionally, it should be noted that in the absence of a widow or widower, the entire capital can be retained by the pension fund, without any payout to children beyond the age of 18, or 25 if they are pursuing further education.

Opting for the pension can also offer additional benefits, such as a child’s pension. If you are retired and have children, you can benefit from a 20% supplement for each child until the end of their education, or until the age of 25 at the latest.

Capital

By choosing to receive the capital, you have the freedom to manage your pension fund assets and determine the number of withdrawals based on your needs. In the early years following your retirement, it is possible to receive a higher income or withdraw a larger amount to reduce a mortgage, renovate your home, or provide an advance on an inheritance.

Those opting for a capital payout will need to generate a type of subsidiary pension from this capital. It is advisable to invest most of the capital in securities to generate income.

Capital investment must not compromise your financial comfort. The gains generated by investments alone cannot guarantee that you'll be able to maintain your lifestyle. Viewed in this light, capital offers several advantages.

Mixed retirement

Many future retirees struggle to decide between choosing a pension or a lump sum. For this reason, an increasing number are opting for a mixed solution: receiving part of the capital while also drawing the rest as a pension. This way, the pension covers basic needs until death, while the capital provides the liquidity necessary for your projects. Today, it often involves finding a balance between the pension and capital, thus combining the advantages of both models, and spreading the risks.

Our team is here to help you determine the best distribution based on your needs and goals. We look forward to hearing from you.

You've just completed the third episode in the series on preparing for retirement. In the last two episodes, we'll look at the impact on your taxes, the best choice for your mortgage, as well as early retirement and retirement abroad.