The principle of the life annuity is that at the time of retirement, you will be able to benefit from an annuity that will be paid to you till your death.
To receive a life annuity, you place a capital in an insurance company which then undertakes to pay you a specific amount at each agreed maturity.
Even when your capital finish, the insurance company will continue to give you your pension.
By investing in a life annuity, you benefit from guaranteed interest as well as an over-compulsory share, which depending on the evolution of interest rates, will possibly allow you to enjoy a larger annuity.
With life annuity only 40% of the annuity is taxable, which is a significant advantage.
What are the different life annuity categories?
There are two categories of life annuities: immediate life annuity and deferred life annuity.
The immediate life annuity:
The immediate life annuity take place when you have a capital and you want to receive an annuity immediately.
Before receiving the pension, a 2.5% federal stamp will be deducted from your capital (mandatory if you live in Switzerland or Liechtenstein).
The immediate life annuity can be for one or two heads:
- If you are single, the pension is mandatory for one person
- If you are married, you may prefer to get the two people life annuity: when the first spouse dies, the surviving spouse will continue to receive the annuity.
You can also choose the “with refund” option: in this case, if the recipient of the life annuity die while the capital is not spent , the heirs (children for example) can receive the remaining capital less the annuities already paid (if the total of the annuities paid has become higher than the capital, the refund will not be made).
If you do not choose the “with restitution” option, the pension that will be paid to you will be a little higher but in case of death, the heirs will receive nothing.
Deferred life annuity:
You can get the deferred life annuity when you are not yet at the retirement age. You pick with the insurer a date to get the pension. In the meantime, you build up capital through a financial investment such as the 3rd pillar.
- You can make periodic payments (monthly, quarterly or annual) on your 3rd pillar allowing you to build up a capital (and in addition to benefit from tax advantages). Once you reach retirement age, you will recover the principal plus interest and be able to convert it into an annuity.
- If you already have a large amount of capital, you can also pay a one-time fee to an account that will earn you interest until retirement age. At the time of retirement, this capital may be converted into an annuity.
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