Lenders usually require homebuyers to provide at least 20 percent of the purchase price as equity. This is a high barrier considering that a large part of a person’s private assets is frequently tied up in pension schemes. Nevertheless, for the purpose of financing residential property, it is possible to withdraw 2nd and 3rd pillar pension capital in advance or pledge it.
Retirement savings (the so-called termination benefit) accrued in the pension fund can be used to purchase or build a home you plan to live in.
You can withdraw 2nd pillar capital in advance if the residential property is to be solely or co-owned by you, or jointly owned by you and your spouse or registered partner. An advance withdrawal may also be used to repay mortgages, purchase shares in a co-operative housing association or make value-adding investments in existing property occupied by you. The capital cannot be used to finance holiday or second homes.
Up to age 50, the amount of your current termination benefit is the maximum you can withdraw in advance to invest in your residential property. From age 50, withdrawals are limited: The maximum capital available is either the termination benefit that you would have been entitled to at age 50 or half of your termination benefit at the time of the advance withdrawal, whichever is highest. If capital is withdrawn, an entry must be made in the land register stating that the property has been financed with pension assets. This ensures that if the residential property is later sold, the capital will revert to your pension assets.
As a capital benefit from an occupational benefit scheme, an advance withdrawal is taxable immediately. A repayment of an advance withdrawal is not tax-deductible. Clarify these points directly with your tax authority. The reduction in retirement benefits caused by the advance withdrawal can only be offset by repayment. Depending on the terms of the pension plan, risk cover (disability or death) can also be expected to be lower. Check with your pension fund whether you should take out a risk policy to cover this shortfall.
An advance withdrawal can be voluntarily repaid before retirement, until the occurrence of another insured event (disability or death) or until the termination benefit has been paid out in cash. The minimum repayment is CHF 10,000.The advance withdrawal must be repaid if you wish to purchase additional occupational pension benefits voluntarily. This also applies if you intend to sell your home and the capital is not invested in another self-occupied residential property within two years.
The first ten percent (at least) of the acquisition price may not be financed from occupational pension assets, but must come from personal savings. Pillar 3a assets can also be used for this purpose. We recommend talking to your mortgage provider and insurer in good time. The maximum amount that can be withdrawn or pledged differs depending on the pillar 3a product. Any pillar 3a insurance benefits lost because of an advance withdrawal should also be reviewed and, where necessary, made up.
A possible alternative to a direct advance withdrawal is to pledge retirement savings. Pillar 3a assets, for instance, can be used for the indirect amortization of a mortgage. Instead of paying back in instalments, assets are built up for the purpose of repaying the mortgage when it falls due.
2nd pillar pension benefits (retirement, disability, death) or an amount up to the termination benefit accumulated to date can be pledged (for persons over 50 the same restrictions apply as in the case of an advance withdrawal). The pledge option can be chosen up to three years prior to retirement age and must be reported to the pension fund in writing. The written approval of the spouse or registered partner is required.
Some of the options for use of your pension assets as determined by the regulations are limited by the pledge. Insofar as the amount pledged is affected, the agreement of the pledge holder is required in the following cases:
Provided you comply with the mortgage obligations, no tax is due, nor is your benefit coverage reduced. However, if the pledged amount needs to be realized, a pledge has the same consequences as an advance withdrawal.
- Increase in equity capital
- Reduction in mortgage amount
- Lower debit interest
- Benefit coverage is maintained
- Tax advantages through deferral of amortization
- Lower own capital requirement (higher loan amount possible)
- Reduced benefits
- Immediate tax on capital
- Lower tax deductibility of debit interest
- Additional benefits cannot be purchased before repayment of the advance withdrawal
- Higher debit interest
- For certain transactions the agreement of the pledge holder is necessary
Detailed information on the advance withdrawal and pledging of assets from an occupational benefit scheme can be found in our information sheet. If your pension fund is with Helvetia and you would like to use it to finance your own home, you are required to complete the form «Promotion of home ownership».
When you make an advance withdrawal of retirement assets, always ensure that your surviving dependants are adequately covered financially should you die or lose your ability to earn. It is also essential that your mortgage is still affordable after retirement. Your pension advisor will help you to choose the variant that best achieves this aim.