Once an employee retires, their accumulated Pillar 2 savings (the 'old-age credit') are converted into a lifelong monthly annuity. The conversion is governed by the conversion rate, which is set in law for the mandatory portion (currently 6.8%) and freely chosen by each fund for the over-mandatory portion (commonly 4.5–5.5%).
Pension funds may offer the choice between a 100% annuity, a 100% lump-sum withdrawal, or a mix (often a 25–50% lump-sum cap). Annuities are inflation-protected only on the mandatory part and only when funds choose to do so; in practice most pensions are not regularly indexed.
Surviving-spouse pensions are typically 60% of the insured pension; orphans receive 20% each. A flat-rate child supplement is paid on top of the retiree's pension for minor children. Pension income is fully taxed as ordinary income; lump-sum withdrawals enjoy a reduced one-off rate.
Annual pension = Accumulated capital × Conversion rate (e.g. 6.8%)
On retirement with CHF 700,000 in the pension fund (CHF 400,000 mandatory at 6.8% + CHF 300,000 over-mandatory at 5%), the annual pension is CHF 27,200 + CHF 15,000 = CHF 42,200 (CHF 3,517 per month).