Every five years, you can make an early withdrawal from your Pillar 3a in connection with home ownership. Whether you should regularly pay off the mortgage with pillar 3a depends primarily on two factors:
- Are the 3a funds invested in shares?
- How high is the progression of the capital gains tax at your place of residence?
If the 3a funds are invested in shares
If you have invested the 3a funds in shares, you can have justified hope that you will earn more return in the long term than you pay in mortgage interest. Therefore, it is not worthwhile to amortise the mortgage if you have invested the 3rd pillar.
If you have invested pillar 3a, you can enjoy further advantages. For example, the return from your investments does not have to be taxed as income and the 3a balance does not have to be declared as wealth. If you have invested your Pillar 3a, it makes little sense to liquidate the securities in order to pay off the mortgage.
If you have not invested your pillar 3a, then things look different. Because you get practically no interest on 3a accounts any more, amortisation of the mortgage is interesting. You can use it to reduce the interest burden on the mortgage.
How high is the progression of the capital gains tax at your place of residence?
One reason why it is recommended to withdraw Pillar 3a regularly in order to amortise the mortgage is the progression of the capital gains tax.
Whenever you withdraw money from your pension in the form of capital, you pay a tax. This tax is progressive, but not to the same extent in every canton. If the tax progression is high, i.e. if you pay significantly less tax in percentage terms for a small lump-sum withdrawal than for a large one, then it can be worthwhile to withdraw regularly from pillar 3a. You can “break” the progression with several small withdrawals.
In the following table you can see how many times more tax (in %) you pay on a capital withdrawal of CHF 250,000 compared to a capital withdrawal of CHF 50,000.
| Canton | CHF 50’000 | CHF 250’000 | x-times the taxes with high capital withdrawal* |
| SZ, Schwyz | 1.40% | 6.30% | 4.50 |
| ZG, Zug | 1.80% | 5.00% | 2.78 |
| SH, Schaffhausen | 2.40% | 5.50% | 2.29 |
| FR, Fribourg | 4.10% | 9.20% | 2.24 |
| BS, Basel | 3.70% | 8.30% | 2.24 |
| GE, Geneva | 3.00% | 6.70% | 2.23 |
| AG, Aarau | 3.30% | 7.30% | 2.21 |
| SO, Solothurn | 3.60% | 7.00% | 1.94 |
| VD, Lausanne | 5.60% | 10.80% | 1.93 |
| AI, Appenzell | 2.50% | 4.80% | 1.92 |
| BE, Berne | 3.60% | 6.70% | 1.86 |
| LU, Lucern | 4.10% | 7.40% | 1.80 |
| NW, Stans | 4.30% | 7.20% | 1.67 |
| NE, Neuchâtel | 4.90% | 8.20% | 1.67 |
| JU, Delémont | 5.40% | 8.70% | 1.61 |
| VS, Sion | 4.40% | 6.40% | 1.45 |
| BL, Liestal | 3.50% | 4.90% | 1.40 |
| GR, Chur | 3.90% | 5.40% | 1.38 |
| UR, Altdorf | 3.90% | 5.30% | 1.36 |
| TI, Bellinzona | 4.00% | 5.40% | 1.35 |
| ZH, Zurich | 4.60% | 6.00% | 1.30 |
| OW, Sarnen | 5.20% | 6.70% | 1.29 |
| GL, Glarus | 4.90% | 6.30% | 1.29 |
| SG, St. Gallen | 5.80% | 7.20% | 1.24 |
| TG, Frauenfeld | 6.40% | 7.90% | 1.23 |
| AR, Herisau | 7.60% | 9.00% | 1.18 |
An alternative to breaking the tax progression via a regular amortisation is the staggered withdrawal.