How does a life annuity work?
A life annuity is an insurance that, in exchange for a capital (single premium), guarantees you a regular income until your death. This additional pension is paid to you for life even when the capital is exhausted, so it allows you to live peacefully with an income guarantee assessed according to your needs.
The amount of the life annuity paid in exchange for the capital will depend on several factors:
- The amount of capital paid to the company
- The age of the insured person, the older the age, the higher the pension
- The gender of the insured person
- The various options chosen (refund, cash value and distribution of surpluses)
- The conversion rate applied by the insurance company, there are companies that pay higher annuities than others thanks to a higher conversion rate
The taxation of life annuities
The calculation of the tax rate for life annuities is based on a Mathematical formula detailed in the Federal law on the taxation of life annuities and similar forms of pension provision. For those who want to consult the details, you can access the full legal text via this link: Fedlex.
For life annuities concluded in 2025, the guaranteed portion of the annuities will be taxed at a rate of only 4%! This makes this solution very advantageous from a fiscal point of view.
For more details please consult our article dedicated to the taxation of life annuities.
Possible options for a life annuity
There are various options that allow you to adapt the life annuity to your needs.
Immediate life annuity
For this type of life annuity, the pension will be paid immediately after the capital has been paid.
An immediate life annuity is for you if you already have capital to invest and you want to benefit from the pension payments immediately.
Deferred life annuity
A deferred life annuity is an annuity that starts at a future date contractually defined by you.
There are then two scenarios:
You do not yet have the necessary capital, it is then possible to build up capital through various products such as a 3rd pillar, by planning to use the capital for a life annuity.
If you already have capital, it is already possible to invest it in a life annuity and to define a future start date (at the age of your retirement for example). The advantage is that the insurance company will pay your capital at an interest rate that is often higher than market averages while waiting for the first pension to be paid.
With reimbursement in case of death
In the event of death, the person you have designated or your family receives the capital paid back, without interest and with deduction of the pensions already received. When the single bonus (your capital) is paid, your capital is subject to a federal stamp of 2.5%.
Without reimbursement in the event of death
In the event of death, nothing is returned to your loved ones, in return you benefit from a higher pension and you are not subject to the 2.5% federal stamp upon payment of the capital
Redeemable life annuity
It is possible to “buy back” the contract, this means that you have the option of cancelling the life annuity and recovering the residual capital. On the other hand, each year the insurance company will send you the cash value of your capital (which corresponds to the capital minus the annuities already paid), this value must then be declared as taxable wealth.
Non-redeemable life annuity
It is not possible to “buy back” the contract, this means for you that it is impossible to cancel the life annuity and recover the remaining capital. The big advantage is fiscal: your contract has no cash value and is therefore not subject to wealth tax.
Life annuity on two heads
Thanks to the life annuity for 2 people, it is possible to insure a lifelong pension for 2 people.
This option is ideal for couples who want to insure each other. In the event of the death of one of the two partners, the survivor will benefit from a life annuity until the end of his life
The certain pension, the alternative to the life annuity
A certain pension is an annuity paid for the period of your choice, between a minimum of 5 years and a maximum of 25 years. It is financed by the payment of a single capital of at least 5,000 francs, in exchange you receive a guaranteed pension for the period you have defined and which can then be increased by an excess portion.
The certain pension offers you attractive taxation, thanks to it you are exempt from the federal stamp (2.5% deducted from your initial payment) and unlike life annuities, the guaranteed pension you receive is not taxed at all on your taxable income.
A certain annuity is an excellent alternative to a life annuity, it is an ideal solution for those who wish to consume their capital over a defined period of time while benefiting from very advantageous taxation.
