Renovating and refurbishing with pension capital. What is permitted?
Renovating residential property can quickly become expensive. Under certain conditions, money from your own pension provision can provide relief. Find out more about when the withdrawal of capital from pillar 3a for renovations is possible and how you can even use your pension fund assets as part of the promotion of home ownership program.
Renovating with capital from pillar 3a
Most Swiss people are aware that they can use money from the third pillar to purchase an owner-occupied home as part of the program to promote home ownership. However, many do not know that tied pension provision assets can also be used to finance renovations and refurbishments if it's an owner-occupied home. It is possible to make an advance withdrawal from your pillar 3a account or safekeeping account, or to pledge assets to the bank for a mortgage increase.
A pledge or withdrawal of assets from pillar 3a is possible for both value-maintaining renovations as well as value-enhancing refurbishments. Examples of this are the remodeling of the building envelope, the installation of a new kitchen, or the creation of a winter garden. However, ordinary maintenance of residential properties such as repairs, and luxury additions, may not be financed using assets from the third pillar.
This renovation work enables the promotion of home ownership
For example, the following are allowed:
- Photovoltaic systems in order to generate heat or hot water
- Renovation of the heating system
- Renovation of the facade (incl. roller shutters, shutters)
- Loft conversion
- Window replacements
- Replacement of flooring
- Roof renovation
- Basement expansion
- Renovation of the entire kitchen, including appliances
- Renovation of the entire bathroom
- Renovation of the fireplace, but only if it is part of the heating and was not added later
- Architect's invoices are covered if they do not account for more than 20% of the withdrawal
The following cannot be financed with pension capital, for example:
- Replacement of furniture
- Replacement of individual household appliances
- Garden shed
- Small, everyday repairs
- Renovations which you perform yourself
Withdrawal of money from pillar 3a for renovations: the rules
There are strict rules about the use of money from the third pillar for renovations: For instance, an advance withdrawal is possible only every five years and only up to five years before reaching normal retirement age. After that, you are able only to withdraw the total assets from the third pillar account or safekeeping account. In addition, the work must be documented by invoices from architects and tradesmen. The invoices may be no more than one year old when the withdrawal takes place. It is also important to note that the payout of withdrawn capital from the third pillar must be taxed at a reduced rate, separately from your other income. A pledge of assets or an increase in the pledge is possible at any time.
Renovating with capital from pillar 3a can be worthwhile
The accrued assets under pillar 3a can be used to cover the cost of renovations. And it pays off twofold. When you use money from the third pillar for renovations and refurbishments of an owner-occupied home, you maintain the value of your home and are even able to benefit from tax advantages. That's because these costs – if they do not increase the home's value – can be deducted for tax purposes.