The 3rd pillar is mainly used to provide for old age. It supplements the first two pillars and ensures that you can maintain your standard of living in old age.
But the 3rd pillar can do even more. Pillar 3a is often used to realize the dream of owning his/hers own home. This is because pillar 3a funds can be withdrawn early when it comes to financing a private home.
What you need to bear in mind when making a WEF advance withdrawal
Capital gains tax becomes due
If you withdraw money from your 3rd pillar, you have to pay tax. This is also the case with an early withdrawal for home ownership.
You can find out how much the tax is by using the tax calculator of the Federal Tax Administration. Several withdrawals of pension assets in the same year are added together.
The capital gains tax cannot be paid with funds from the advance withdrawal. Therefore, the capital withdrawal tax must be paid from free funds. This should be taken into account when calculating the cost of financing.
Partial amounts can also be withdrawn
Normally, 3a accounts can only be drawn as a whole. However, in the case of early payout for home ownership, it is possible to withdraw only a part.
Only possible until 58 / 59 years
A 3rd pillar WEF advance withdrawal is only possible until the age of 58 / 59. If you want to withdraw money from the third pillar after that, you have to withdraw the entire balance of a 3a account. The reason is that from the 59th or 60th birthday, you can withdraw the 3rd pillar anyway. So there are no more early withdrawals.
No minimum amount
In contrast to the early withdrawal of pension fund assets, where a minimum of CHF 20,000 must be withdrawn at once, there is no minimum amount for a withdrawal from the 3rd pillar. However, it should be noted that the pension foundations charge a flat fee for an early withdrawal. As a rule, it is not worthwhile to withdraw smaller amounts.
No maximum amount
If you want to make an advance withdrawal from the pension fund for home ownership, there is one restriction. A maximum of half of the required own funds of 20 percent may come from the 2nd pillar.
There is no such restriction for the 3rd pillar. In principle, the entire 3rd pillar balance can be withdrawn and invested in a home. Whether this makes sense or not is another question, which we will explore in a separate article.
Only every five years
An early withdrawal for home ownership is only possible every five years. It is irrelevant whether you have several 3a accounts with different pension foundations. If the five-year period is violated, the tax authorities will usually add up the withdrawals retrospectively, resulting in a higher tax bill (keyword: tax progression).
Both partners can make an advance withdrawal
In the case of registered partnerships or marriages, both partners can withdraw money from the 3rd pillar independently of each other. The five-year period applies separately to both.
The condition for 3a funds to be drawn by both partners is, of course, that both are also owners.
Only permissible for main residence
A withdrawal of 3a funds is only possible for the owner-occupied home at the main residence. Multi-family homes and properties abroad can also be financed in this way, but not second homes or vacation homes.
Withdrawn money cannot be put back into pillar 3a
Unlike money from the 2nd pillar, an early withdrawal from the 3rd pillar cannot be repaid. This means that once 3rd pillar money has been withdrawn, it can no longer be contributed to the pension plan.*
Against this background, the question arises as to whether it would be better to make an advance withdrawal from the 3rd pillar or from the pension fund. In addition, there is also the option of pledging instead of withdrawing.
*This does not mean the annual deposits, which are still possible. Even in the year when a payout is made, you can make a payment into the 3rd pillar and thus benefit from the tax deduction.
No restriction on sale in the land register
If PF funds are withdrawn in advance for residential property, a note is entered in the land register. The effect of the note is that the property can only be sold if the 2nd pillar funds withdrawn in advance are also repaid at the same time.
Because there is no repayment possible in the 3rd pillar, there is no restriction on disposal when withdrawing 3a funds, which is entered in the land register.
Written consent of (spouse) partner required
The written consent of both partners is always required for all advance withdrawals.
Pledging as an alternative to early withdrawal
Pledging has the following advantages over an early withdrawal:
- No capital withdrawal tax is due (yet). The tax can be postponed to a later date, for example when the funds are definitely withdrawn as part of retirement. Until then, you can do better with the tax you have saved.
- The 3a assets and the income on the assets remain tax-free in the pension plan. Depending on how high the tax burden is, this can save a lot of money over the years.
- In addition, there is a good chance that you will earn more return with the 3rd pillar over time than you pay in mortgage interest. Of course, this is only the case if you are prepared to invest your money in equities and can deal with the risks of fluctuations in value.