If you want to buy property, you need at least 20% of your equity capital. If your free funds are not sufficient, an early withdrawal can be drawn from the pension fund. In doing so, up to 10% of the lending value can be provided from 2nd pillar funds.
And even if you have sufficient free funds, you can still withdraw from the pension fund. The mortgage burden can be reduced to improve financial affordability. Furthermore, the withdrawal can be used to initiate a staggered withdrawal before retirement.
The 3rd pillar can also be early withdrawn. There is no limit of 10% of the mortgage lending value. 3a funds can be used without restriction for self-used property or to amortise the mortgage.
If you are not dependent on both the second and third pillar to finance your property, the question arises as to which is better, the pension fund capital or the third pillar.
Consequences of an early withdrawal
Before making an early withdrawal from the pension fund, it is important to be aware of the consequences:
- An early withdrawal is subject to capital withdrawal tax. If you pay the early withdrawal back into the pension fund later, you can reclaim the tax. The final tax bill can thus be postponed until retirement.
- A gap in provision can arise as a result of the withdrawal. Your pension fund is obliged to inform you of the impact of an advance withdrawal on the expected retirement assets and the coverage of the risks of death and disability.
- Until all early withdrawals have been repaid in full, tax-privileged purchases cannot be made.
For the reasons mentioned above, it can make sense to “only” pledge pension fund funds instead of withdrawing them.
Important facts about the early withdrawal for home ownership
One note in advance: the legislator grants pension institutions up to six months to pay out an early withdrawal. Although much shorter periods are common in practice, it is worth checking the specific situation with your own pension institution as soon as possible.
To be recommended three years after a voluntary purchase
If you have voluntarily paid into the pension fund in the past three years, it is not recommended to eary withdraw funds. If you still make an early withdrawal, the tax deduction that you were able to make with the voluntary purchase will be retroactively offset. You will have to pay an additional tax.
Restriction from the age of 50
In principle, you can early withdraw the entire retirement assets. There is no maximum amount. However, the banks do have a rule which states that a maximum of half of the required equity capital, i.e. 10% of the lending value, may derive from the 2nd pillar.
Starting from 50 it looks differently. From the age of 50 onwards, a maximum of half of the current retirement assets may be drawn or what one would have been entitled to draw at 50. If the current credit balance is more than twice as high as the credit balance at 50, then you can withdraw more than you could have at 50, otherwise not.
At least CHF 20,000 per withdrawal
The minimum amount for an early withdrawal is CHF 20,000. Amounts from several pension funds cannot be added together. The limit applies separately for each withdrawal and pension institution.
There is no minimum amount for participation in housing cooperatives. There is also no statutory minimum amount for the withdrawal of vested benefit assets. Since both pension funds and vested benefits foundations often charge flat-rate processing fees of several hundred francs, it is not worthwhile for most people to withdraw just a few thousand francs.
Only possible every 5 years
An early withdrawal is only possible every five years. However, this provision applies separately to each 2nd pillar pension scheme. So if you have assets with several pension funds such as pension foundations, 1e collective foundations or vested benefits foundations, several early withdrawals are possible during the five years: Once drawn from the pension fund, the other time from the vested benefits foundation, etc.
The situation is different for 3rd pillar assets. 3a assets may only be withdrawn every 5 years, regardless of where they are deposited.
Up to 3 years before retirement
As a rule, an early withdrawal is only possible up to three years before reaching ordinary retirement age. However, pension institutions may shorten this period or waive it altogether. Ask your pension institution and find out about the applicable rules in the regulations.
Restriction possible in the event of a cover shortfall
If the pension fund is in a state of cover shortfall, it may not be possible to make an early withdrawal, or this may only be possible after a time delay. You should therefore clarify the situation with your pension institution.
What is considered an investment in property?
Pension assets can only be used for properties that you live in yourself. No early withdrawals can be made for second homes. This is only possible for primary residences in the following cases:
- Purchase of a flat or a house
- Building a house
- Participation in a housing cooperative (or similar)
- Repayment of mortgage loans
Pension fund money may also be used for renovations or reconstructions. However, they cannot be used for ongoing maintenance or mortgage interest.
The early withdrawal is not possible when purchasing building land. Only when an approved building project for the land is available, a withdrawal can be effected.
Special case: apartment buildings
Pension money can also be withdrawn in advance for apartment buildings. It is irrelevant whether the buildings are apartment units or not. As long as one of the flats is occupied by the owner, the legal conditions are fulfilled (flat + ownership).
The size of the early withdrawal is also limited to 10% of the lending value in the case of an apartment building. However, it is not the mortgage lending value of the entire building that is relevant, but only that of the flat that you occupy yourself. The share of the value of the flat you live in out of the entire apartment building must therefore be excluded.
Special case: real estate abroad
Housing abroad can also only be co-financed with pension fund money if you live there yourself. For second homes, the pension fund cannot be drawn here either.
It is also possible for cross-border commuters and people who settle in the EU/EFTA to benefit from the home ownership support. For them, the rule that only 10% of the loan-to-value ratio may be financed with funds from the 2nd pillar applies only to a limited extent. This rule is a self-regulation of the Swiss banks. If the property is financed by a foreign bank, other rules apply.
If you settle outside the EU/EFTA (emigration), you can withdraw the full amount of the pension fund anyway. The withdrawal does not have to be in connection with a purchase of residential property.
Special case: replacement procurement
Are you planning to sell your property and buy another property? If so, you can pay the early withdrawal into a vested benefits account after the sale of your previous home. Then you have two years to purchase the new property and can make the advance withdrawal as your own funds again.
Protection of the purpose of the pension scheme
In order to preserve the purpose of the pension funds, a restriction on sale is entered in the land register when the funds are withdrawn. The effect of this restriction is that residential property may only be sold if the advance withdrawal is simultaneously repaid to the pension fund. If the sale proceeds (sale price less mortgage debt and transfer costs) are lower than the advance withdrawal, only the sale profit must be repaid.
Withdrawal or rather a pledge?
Although we have always talked about a withdrawal so far, it should be noted that there is also the possibility of pledging pension fund assets:
- The pledge has the advantage over the subscription that no capital subscription tax has to be paid (yet). The tax can therefore be deferred until later.
- In addition, purchases into the pension fund are still possible, which in the case of an early withdrawal is only permitted again after it has been fully repaid.
- Furthermore, an early withdrawal can (but does not have to) reduce the benefits in the event of disability or death. Benefits are not reduced in the event of a pledge.
- After all, you may even receive a higher interest rate from the pension fund than you have to pay for the mortgage.
So you see, if you have enough free funds and the financial affordability allows it, there are many arguments in favour of a pledge and against an early withdrawal.