Obtaining sufficient equity capital for your dream home: An overview
Don’t let equity capital be a roadblock to the dream of home ownership: Under the promotion of home ownership scheme, you can use funds from your retirement provision to contribute enough equity capital to secure financing for your property.
Use the promotion of home ownership scheme to raise the required equity capital
Anyone wanting to buy a property must put down at least 20% of the market value in equity capital. A maximum of 80% of the purchase price can be financed with a mortgage. These financing requirements can be a hurdle, which is why many buyers nowadays withdraw funds from their retirement provision under the promotion of home ownership scheme. This financing tool enables more people to afford the necessary equity capital and make the dream of owning their own home a reality.
The promotion of home ownership is subject to specific conditions
The promotion of home ownership scheme refers to the early withdrawal of 2nd and 3rd pillar pension assets in order to buy or renovate an owner-occupied home or to pay down a mortgage. Advance withdrawals from retirement provision are precisely regulated. The tied pension provision, Pillar 3a, can count towards liquid assets. These must be used to account for at least 10% of the total purchase price of the property.
Capital from the 2nd pillar can be fully withdrawn up to the age of 50, after which only partial withdrawals are possible. Restrictions also apply if you have made voluntary purchases of pension assets within the last three years. The entire balance of 3rd pillar capital can be withdrawn regardless of age. Withdrawals from both the 2nd and 3rd pillars can be requested no more than once every five years. Other regulations apply to pledging, which is an option available as an alternative to an advance withdrawal.
Pension capital can only be used under the promotion of home ownership scheme in order to purchase residential property that will be occupied by the owner. Properties that are to be used as vacation homes or for renting to third parties may not be financed using assets from retirement provision.
Financing of residential property from equity capital and a mortgage
Example of financing with the minimum 20% equity capital, at least 10% of which must come from liquid assets.
Source: Credit Suisse
Using funds from retirement provision to purchase a home: The downsides
The primary purpose of early withdrawals from the 2nd and 3rd pillars or pledges is to enable people with less equity capital to finance home ownership. By using funds under the promotion of home ownership scheme, the equity capital available for the purchase of a property can be increased. The increased equity capital means that the amount of the mortgage can be reduced, which leads to lower mortgage interest.
There are also disadvantages to withdrawing pension capital: Any amounts withdrawn will mean a lower retirement provision balance later. Disbursement of funds from the 2nd pillar can also result in a situation where pension benefits can no longer be rendered in full in the event of death or disability. Withdrawals from Pillar 3a will also lead to a reduction of retirement benefits. Withdrawals of 2nd and 3rd pillar assets also incur a capital disbursement tax that can vary widely according to canton.
Taking advantage of the promotion of home ownership: What are the important things to note?
| 2nd pillar / pension fund | Pillar 3a | |
| Minimum withdrawal | Minimum amount of CHF 20,000 | No minimum amount |
| Effect on pension benefits | Less retirement capital upon retirement, lower risk benefits in the event of death/disability depending on pension fund |
Less retirement capital upon retirement |
| Limit | Withdrawals only possible every five years. Further limits above age 50 and in the event of voluntary purchases of benefits within the last three years. |
Withdrawal only possible every five years |
| Repayment of the amount withdrawn | Repayment typically possible up to three years before retirement |
Repayment not possible |
| Consent of spouse / registered partner |
Consent required | Consent required |
Quelle: Credit Suisse
Combining second and third pillar funds under the promotion of home ownership scheme
If pension capital is withdrawn for the promotion of home ownership, it is important to clarify the risks in advance and to consider carefully whether assets from the pension fund and/or Pillar 3a should be used. In most cases, it is advisable to withdraw funds from Pillar 3a first. This ensures that the insurance coverage provided by the pension fund in the event of disability or death will remain in place and any later retirement pension from the 2nd pillar will not be directly reduced.
However, less capital is generally available in Pillar 3a than in the second pillar. If additional funds are still needed after an advance withdrawal from the 3rd pillar, these can then be covered with the pension fund. Which sources are most suitable for the purchase of residential property also depends on factors such as an individual's future plans and current financial position, and the conditions of the pension fund in question.
