Home ownership – thanks to pension fund capital

Do you dream of owning your own home? If you don’t have enough money to buy your own home, an advance withdrawal or a pledge from the pension fund could be the solution. The promotion of home ownership (WEF) can open doors for you – provided the consequences are manageable.

Can I use my pension fund assets to buy a house? And under what conditions? Most people in Switzerland who dream of owning their own home ask themselves these questions. As a rule, the answer is yes. However, such a decision will have an impact on your pension situation. You should therefore carefully consider what is the best solution for you. We would be happy to help you.

Conditions for an advance withdrawal of pension assets

1. Personal 

In order to withdraw pension capital early, you may not be disabled and must not yet be drawing any retirement benefits.

2. Own use 

In Switzerland, pension capital may only be used to finance owner-occupied property. The following options are permitted: 

• Purchase or construction of owner-occupied residential property
• Investing in your own home
• Repaying a mortgage
• Acquisition of shares in housing cooperatives or similar holdings

You will not receive any pension assets for the normal maintenance of residential property, the payment of mortgage interest, or for vacation apartments or properties for rent.

3. Minimum amount 

The minimum amount for advance withdrawals is CHF 20,000. This means that you must have saved at least this amount in the pension fund.

4. Maximum amount 

• If you are under 50, you can withdraw the entire amount you have saved up to then, i.e. your current vested benefits.  
• From age 50, the maximum advance withdrawal equals the vested benefits at age 50 or half of the current vested benefits – whichever is higher. 

5. Date

• Your last advance withdrawal must have been at least five years ago. In Switzerland, advance withdrawals are only permitted every five years.
• After a pension fund purchase you should not withdraw any capital for at least three years. Otherwise, the taxes saved through the pension fund purchase must be paid back after withdrawal.
• The last possible date according to the law for an advance withdrawal is three years before ordinary retirement. However, at AXA early withdrawal from the Pillar 2 is possible until retirement age.

Promotion of home ownership: Advance withdrawal or pledge?

The Federal Act on Occupational Old Age, Survivors’ and Invalidity Pension Provision (BVG/OPA) allows capital from occupational benefits insurance to be used in two different ways to purchase owner-occupied residential property:

1. Advance withdrawal of pension assets
2. Pledging of pension assets and/or pension benefits

Whether an advance withdrawal or a pledge – both have advantages and disadvantages. The decisive factors are your personal situation and your need for security.

More equity thanks to advance withdrawal

In the case of financing by means of an advance withdrawal, the money withdrawn from the pension fund counts as equity. So you can manage with a smaller mortgage. This  reduces the mortgage interest burden. However, you pay more tax, because you can deduct less interest. Above all, however, the advance withdrawal of pension assets also entails certain risks: Divorce, illness, or job loss could force you to sell your house below its value.

Consequences of an advance withdrawal

Pension reduction: Future retirement payments will be lower. There is therefore a risk of a pension gap – unless you save the lost capital and repay this money before you retire (new purchase).

Reduction in benefits: Reduced pension fund benefits apply in the event of disability and death. To compensate for the lower benefits, you should take out risk coverage for disability and death. 

Taxes: The pension fund informs the Swiss Federal Tax Administration of the amount of the advance withdrawal within 30 days. The capital withdrawn in advance must be taxed as a lump-sum payment from your pension assets. In general, the tax on the advance withdrawal is calculated separately from other income. Further information on taxation can be obtained from the tax office of your place of residence.

Sales restrictions in the land register: If you make an advance withdrawal to buy your own home, a sales restriction will be entered in the land register. If you sell the residential property, the advance withdrawal must be repaid to the occupational benefits institution.

Additional borrowed capital thanks to a pledge

When pledged, your pension capital remains in the pension fund. For your bank, however, the pledge provides additional security. Basically, the bank even regards the pledged pension capital as your own capital. The argument: This money is yours. If you fail to meet your financial obligations, the bank can access the pledged capital. The consequences for you are then the same as for an advance withdrawal. Against this backdrop, the bank is prepared to finance you more than the usual 80% of the property value. Specifically, you receive a higher level of financing, which is secured with your pension fund assets. But remember that you will have to repay this higher additional financing, as well as the second mortgage, within 15 years.

How does a pledge affect your financial situation? Since you have borrowed a lot, you are now paying substantial interest. On the other hand, the mortgage debt has a positive impact on your taxes, and the pledge itself – unlike an advance withdrawal – is not taxed. However, the biggest advantage is that your pension capital remains unaffected: There will be no change to the insured benefits on retirement, disability, or death. The bottom line is that a pledge, which may seem expensive at first glance, can actually be cheaper than an advance withdrawal.

Once you have decided on an option and secured the financing, you can start looking for the right property. Browse platforms such as newhome for offers that meet your needs and financial expectations.

Types of pledges 

There are two different types of pledges. Your bank achieves optimum security when both types are combined:

1. You pledge the pension assets you currently have saved, i.e. your vested benefits. If you still owe your mortgage, this is known as a realization of the pledge: The bank receives your pension assets, which effectively amounts to an advance withdrawal. 
2. You pledge your entitlement to future pensions. Let’s assume that repaying your mortgage doesn’t work out as planned: As soon as a benefit case occurs (retirement, disability, or death), you must forgo your pension until your debt is paid.

Maximum amount of the pledge

Here too, the maximum amount allowed depends on your age: 

• If you are still under 50, a maximum of the current vested benefits can be pledged. 
• From age 50, the maximum pledge equals the vested benefits at age 50 or half of the current vested benefits, whichever is higher.

It may be agreed in the contract that the pledge amount will be adjusted continuously in line with changing vested benefits.

Restriction

If you have pledged your pension assets, your freedoms are restricted: You need written consent from the pledge holder if you wish to have the vested benefits paid out or, in the event of a benefit case, the pension benefits paid out. This also applies if part of the vested benefits are to be transferred to the other person’s occupational benefits institution following a divorce.