Advance withdrawal of retirement savings to buy a home
The Swiss government encourages home ownership. If you want to buy a home to live in yourself, you can use money from your occupational and pillar 3a pensions. Comparis shows you how to improve your loan-to-value ratio by means of your pension savings.
12.04.2022
iStock / skynesher
1. 20% deposit required
Most home buyers in Switzerland need to borrow money to finance a property. However, to take out a mortgage, you need to pay at least 20% of the property's purchase price out of your own pocket.
However, since home ownership is encouraged in Switzerland, you are allowed to withdraw money from pillar 3a and your occupational pension (second pillar) in order to buy a house or apartment. There are two ways of doing this: you can either make an advance withdrawal to increase your deposit, or pledge the assets as collateral to secure the mortgage.
2. Advance withdrawals from occupational pension and pillar 3a to buy a home
Early withdrawal of the savings accumulated in your occupational pension (2nd pillar) or pillar 3a account can free up additional equity for the purchase or construction of a permanently owner-occupied residential property. Note that this does not apply to the financing of investment properties, holiday apartments or buy-to-let properties.
Advance withdrawals are possible every five years. The payout of the pension capital is taxed at a reduced rate, which varies according to place of residence and the amount of money involved.
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You can also pay off your mortgage using the savings in your occupational or pillar 3a pension. Another tip: you can also withdraw money from pillar 3a or your company pension to buy a share in a residential property or to finance renovations and value-enhancing investments.
For what purpose can I withdraw money from my occupational pension?
In the context of home ownership, you may withdraw funds from your occupational pension in the following cases:
To buy a home that you will live in permanently yourself.
To build a home that you will live in permanently yourself.
To make value-enhancing investments in a home you live in.
To pay off a mortgage on a home you live in.
To purchase a share in a housing cooperative or similar.
The following applies to advance withdrawals from occupational pensions
Of the legally required 20% deposit, only half may come from pension withdrawals. The other half must be "hard" equity. Once the deposit requirements are met, additional occupational pension assets may be invested in the purchase of the home. You will find the available amount on your pension statement, or you can ask your pension provider.
The minimum amount that can be withdrawn from your retirement savings is 20,000 francs.
Up to the age of 50, you can withdraw your entire balance; after that, you can withdraw either the money you saved until the age of 50 or half of your current balance. You generally receive whichever amount is higher. Contact your pension fund directly if you wish to make an advance withdrawal. They will send you the application form.
You can make advance withdrawals both to purchase residential property and to pay off a mortgage.
Important: advance withdrawals from your occupational pension also involve risk and come with constraints. In the event of divorce, insolvency or a loss on the sale of the property, you may lose both your property and your pension entitlement. You must repay the advance withdrawal as soon as the property is sold or is no longer owner-occupied.
Please note: depending on the pension fund regulations, an advance withdrawal of pension savings may lead to a reduction in disability or death benefits as well as a reduction in pension assets. If you are planning to withdraw pension savings, you should review how this affects your pension situation and consider taking out a pension product to make up any shortfall. You should pay back any advance withdrawals as soon as you can.
When do I have to pay back the advance withdrawal from my company pension?
You can repay the advance withdrawal from your second pillar before you retire provided no other insured event has occurred (disability, death) and before any retirement benefits are paid out in cash. The advantage of repaying the money is that you will have a better pension when you retire.
Important: you must repay the advance withdrawal if you sell your residential property more than three years before statutory retirement age.
The following applies to advance withdrawals from pillar 3a
There is no age limit for making advance withdrawals from pillar 3a nor is there a minimum amount. Unlike withdrawals from pillar 2, withdrawals from pillar 3a to finance a property purchase are classed as "hard" equity.
You can make advance withdrawals both to purchase residential property and to pay off a mortgage.
Partial withdrawals of pillar 3a capital are only possible up to five years before statutory retirement age. After that, you can only withdraw the entire balance of the pension product in question. It is therefore worth opening multiple pillar 3a accounts.
3. Pledging pillar 2 and pillar 3a assets to buy a home
Unlike advance withdrawals, pledging pillar 2 or pillar 3a assets does not increase your equity in the property. It simply serves as collateral for increasing the amount of the mortgage.
The lender can only touch the pledged money if the borrower gets into serious, permanent difficulties with their payments. This means that the money stays in the pension fund and continues to accumulate interest tax-free.
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Thinking of buying a property? With the mortgage calculator, you can calculate how much you can afford to pay for your dream home. You can easily compare mortgage interest rates for different mortgage types in the Comparis interest rate comparison.
This article was first published on 06.03.2018