An alternative to an early withdrawal is to pledge pension assets. Pledged pension assets are treated like equity. With the pledge, the bank can finance up to 90 percent of the pledged value and not just 80 percent as is in normal cases.
| early withdrawal | Pledge | |
| account value | CHF 100’000 | CHF 100’000 |
| early withdrawal PF/3a | CHF 100’000 | |
| total free assets | CHF 200’000 | CHF 100’000 |
| early withdrawal | Pledge | |
| mortgage 1 (65 %) | CHF 650’000 | CHF 650’000 |
| mortgage 2 (15 %) | CHF 150’000 | CHF 150’000 |
| Additional mortgage (10 %) | — | CHF 100’000 |
| Cash | CHF 200’000 | CHF 100’000 |
| Purchase price* | CHF 1’000’000 | CHF 1’000’000 |
Like the second mortgage, the additional mortgage must be amortized within 15 years.
Of course, pledging is only an option if affordability is given.
The bank can access the pledged pension assets if the mortgage can no longer be “serviced”, i.e. if interest and / or amortizations can no longer be paid. In this way, the bank can protect itself against a possible loss.
Pro’s and Con’s of a pledge
Pledging has many advantages over an early withdrawal:
- Pension Fund (PF) and 3a: Compared to a withdrawal, a pledge has the advantage that no capital withdrawal tax has to be paid (yet). The tax can therefore be deferred until later. However, it should be noted that an advance withdrawal can also be used as an instrument for staggered withdrawal, which can serve to reduce the progression of the capital withdrawal tax.
- PF: In the event of a pledge, purchases into the pension fund continue to be possible. After an early withdrawal from the pension fund, tax-privileged purchases are only possible again after early withdrawals have been repaid in full. It may therefore make more sense to withdraw only the 3rd pillar and pledge the pension fund.
- PF: Furthermore, an advance withdrawal may reduce the insured benefits in the event of disability and/or death. A pledge has no influence on the risk coverage of the pension fund.
- PF and 3a: The processing of a pledge is often more favorable than the processing of an early withdrawal. As a rule, pension foundations charge significantly higher fees for an early withdrawal (Pension Funds/Vested Benefit Plans up to CHF 500 / 3a up to CHF 300).
But there is also one disadvantages:
- PF and 3a: Because the mortgage is higher, you pay more mortgage interest.
As with indirect amortization, you should check whether the pledge is really in your interest, or rather in the interest of the bank. Because a pledge is interesting for the bank. It earns more on the mortgage because it can charge you more interest.
Interest rate comparison can be rewarding
In addition to the personal assessment of the advantages and disadvantages, you should look at how much interest you generate on the pension assets. It is possible to generate more money with the pension than you have to pay as interest for the additional mortgage.
Comparison pension fund vs. mortgage interest rate
If you are insured with a pension fund that generates good investment returns and can therefore pay a high rate of interest on your retirement assets, it is more likely to be worthwhile to pledge them. Check the pension certificate to see how much interest is paid on the retirement assets.
| Interest on retirement savings pension fund | 2.5 % |
| Interest rate additional mortgage | –1.2 % |
| Advantage of pledging per year | +1.3 % |
Comparison 3a account vs. mortgage interest rate
If you have the pension money in a 3a account, it is less worthwhile to pledge it. You will probably pay more interest on the mortgage than you receive on the 3a account.
| Interest Rate 3a account | 0.1 % |
| Interest rate additional mortgage | –1.2 % |
| Disadvantage of pledging per year | –1.1 % |
Comparison 3a funds vs. mortgage interest rate
The answer to whether pledging 3a assets invested in securities is worthwhile is not as simple as that. It depends on your expectations, how much return you can achieve with pillar 3a in the long term and whether you are prepared to bear the risks of fluctuations in value. If the value of the pledged 3a assets falls below the pledged value, the bank can demand additional collateral.
| expected long-term performance 3a security solution? | 3.0 % |
| Interest rate additional mortgage | –1.2 % |
| Advantage of pledging per year | +1.8 % |
Pledging can improve affordability
The pledging of pension assets should improve the affordability. However, because banks are relatively free to define how they calculate affordability, pledging may not lead to any improvement.
The regulation is only very general in this regard: ” The affordability must be long-term and must therefore be based on sustainable revenues and expenditures.”
On the one hand, the bank determines which income they take into account. On the other hand, they define how to calculate the expenses. The bank thus determines how high the imputed mortgage interest rate is that they use to calculate the interest costs.
So the bank has the ability to distinguish between:
- the part of the mortgage with additional collateral in form of a pledge and
- the part of the mortgage without additional collateral in form of a pledge.
Such a distinction would be nothing but logical. But to understand this, we have to go back one step again.
The mortgage interest rate, which is used to calculate the theoretical interest costs for the affordability, is set conservatively by the banks. They argue, the interest costs musst be affordable even if the effective interests rise significantly.
According to this logic, the imputed interest rate for the additional mortgage should be lower. This is because there is basically no interest rate risk on this part of the mortgage. If interest rates were to rise sharply, the pledged pension assets could be drawn down and the mortgage could be amortized.
In principle, the pledging of 2nd and 3rd pillar pension assets should result in improved affordability. However, it is up to the bank whether and how they take the lower interest rate risk into account when calculating the imputed interest.
Conditions for a pledge
The following conditions must be met in order for pension assets to be pledged:
- Only for mortgages serving owner-occupied residential property (not for second homes).
- If both spouses have an interest in the property, both may pledge their pension provision.
- Only with the written consent of the spouse or registered partner.
Pension assets may also be pledged in favor of mortgages on residential property abroad, as long as this is the main residence.
Deadline for a pledge
Pledging of PF assets is generally only possible up to three years before retirement. This deadline also applies to pillar 3a.
Maximum amount for pension fund assets from 50 years plus
From the age of 50, you may pledge a maximum of half of your current retirement assets or what was available at 50. If the current balance is more than twice as high as the balance at 50, then you can pledge more than at 50, otherwise not.
Restrictions that do not apply
What is known from the WEF advance withdrawal of PF funds does not automatically apply to pledging, for example:
- There is no minimum amount of CHF 20,000 per pledge.
- Pledging is not only possible every five years.
Contact the pension fund at an early stage
If pledges jeopardize the liquidity of the pension fund, the pension fund can defer such requests. It is therefore worth asking as early as possible about the possibilities of a pledge.