Both the 2nd pillar and the 3rd pillar can be withdrawn if the pension is invested in a home. So it’s tempting to think that you could withdraw all your pension assets and thus minimize the interest burden on your mortgage, or is that perhaps not such a good idea after all? We explain.
What is in favor of amortization of the mortgage
- The mortgage interests can be reduced. If there is a second mortgage that has a higher interest rate than the first mortgage, the saving is greater.
- The saving of the mortgage interests is certain. It is calculable in contrast to the return on the investment of pension assets in securities (applies to both the 2nd and 3rd pillar).
What is against the amortization of the mortgage
Cons: General disadvantages
- A withdrawal of pension assets triggers capital withdrawal tax. In addition, pension funds charge fees for early capital withdrawals of several hundred francs.
- The lower interest burden on the mortgage leads to a higher taxable income.
- The lower mortgage debt leads to higher taxable assets.
- The assets and income in the pension plan are tax-free. This means that they do not have to be declared in the tax return and are therefore not added to the taxable assets and taxable income. These advantages are given away with a withdrawal of the pension assets.
- Once a mortgage has been repaid, it cannot be increased again without further effort. This consideration is especially important with regard to retirement. You may need the pension money to live on in retirement and be happy not to have paid off the entire mortgage. Since one usually has a lower income at retirement age, the affordability of one’s home is lower, which makes the banks reluctant to increase the mortgage again.
Cons: Disadvantages related to the 2nd pillar
- A withdrawal of PF funds may affect the risk coverage in the event of death or disability, but does not have to. Clarify the situation with your pension fund.
- There is a minimum interest rate in the BVG mandatory pension plan. There is also a minimum pension conversion rate. Both are relatively high and correspondingly attractive. After an early withdrawal, you can no longer benefit from this, at least as long as you have not repaid the funds.
- You can no longer make voluntary purchases. Voluntary purchases can only be made again once the 2nd pillar pension assets have been repaid in full. PS: Voluntary purchases are often interesting because they can be deducted from taxable income.
- A restriction on sale is entered in the land register. The property can only be sold again if the 2nd pillar funds are repaid in full. The entry and the removal in the land register cost something, but not much.
Cons: Disadvantages related to the 3rd pillar
- With a long-term investment of the 3rd pillar in securities, there is a chance that you can achieve a return that is higher than the mortgage interest you pay.
- The funds withdrawn from the 3rd pillar cannot be reinvested in the pension plan, even if the home is sold. The assets remain private property and must be taxed as normal.
Despite the substantial disadvantages, anyone who wants to reduce the interest burden of the mortgage with pension provision should do so primarily with the 3rd pillar. The saving of the interest is given in contrast to the yield with the investment of the 3rd pillar in securities.
Secondarily, the BVG extra-mandatory is eligible, provided that it is at all possible to draw only the extra-mandatory (in general, this is not possible; payment is made on a pro rata basis).
An early withdrawal of the BVG mandatory pension is less recommended due to the minimum interest rate and the attractive pension conversion rate.