Using your pension fund assets to finance a home: Advance withdrawal and pledging

In Switzerland, pension fund assets can be used to purchase a home. There are two ways of doing this: advance withdrawal and pledging. Learn about the differences and see the best option for your situation.

Using pension fund assets to buy a home

Anyone wishing to purchase a property must therefore generally be able to provide at least 20% equity capital. To provide the equity, you can use money from your pension fund under the WEF home ownership promotion program. You can either make an advance withdrawal or pledge the funds. To be eligible, the property must be used as your own residence.

You do need to be able to provide funds though: At least 10% of the purchase price must come from liquid funds such as savings or gifts. Many people are unaware that vested benefits can be used not only to purchase a home, but also for renovations to owner-occupied property or to repay a mortgage.

Maximum amount for an advance withdrawal or pledging of pension fund assets

You can generally use the entire vested benefit until age 50. After that, you can buy a home using either the balance that was in your pension fund when you reached age 50 or half of the current balance, whichever is higher. Under the promotion of home ownership scheme, advance withdrawals and pledging are generally permitted up to three years before normal retirement. Pension funds can make alternative stipulations in their regulations though.

Maximum amount for advance withdrawal or pledging from the pension fund

Example of the maximum amount in the event of an advance withdrawal and pledging of pension fund assets

Until age 50, the entire vested benefits of CHF 100,000 can be used. At age 55, the pension fund has a balance of CHF 150,000. Instead of half the current balance (CHF 75,000), up to CHF 100,000 (balance at age 50) can be used. At age 60, the pension fund balance is CHF 240,000. Half of this, meaning CHF 120,000, can be taken as an advance withdrawal or pledged to finance the purchase of your own home.

Source: Credit Suisse

Thanks to an advance withdrawal of pension funds for home ownership

An advance withdrawal of assets from the pension fund frees up more equity capital. This makes it easier to finance your own home, and more equity capital means a smaller mortgage, and less mortgage interest.

The disadvantage, however, is that advance withdrawal creates a pension gap. For this reason, the amount withdrawn in advance should be repaid before retirement, or a private pension solution should be found to bridge the gap. Otherwise, the pension fund will pay out lower benefits on retirement. Depending on the pension fund, there may even be lower benefits for disability, or lower survivors' benefits in the event of death. Anyone withdrawing money early from their pension fund should therefore check with a specialist whether any gaps will arise in the pension provision and how these could best be closed.

Using your pension fund assets to finance a home: Things to consider.

You can make an advance withdrawal of retirement benefits in order to finance home ownership every five years; the withdrawal must be at least CHF 20,000. Any repayments to the pension fund must be at least CHF 10,000 and can generally be made until up to three years before you retire, unless otherwise stipulated by your pension fund's regulations.

The amount withdrawn from the pension fund in advance will be taxed at a reduced rate, separately from your other income. These taxes cannot be paid using the sum withdrawn. If you repay the money to the pension fund at a later date, you can also request a tax reimbursement but will not receive interest. Once you make an advance withdrawal from the pension fund, you cannot make tax-deductible, voluntary purchases of 2nd pillar benefits until you have repaid the advance withdrawal in full. The amount withdrawn in advance must also be repaid in full to the pension fund if you sell your own home. If you want to use the proceeds to finance another property within two years under the promotion of home ownership program, this amount can be transferred to a vested benefits institution.

Pledging of assets from the pension fund in order to buy a property

Instead of taking the capital from your pension fund, you can also pledge the pension fund assets. In this case, you would pledge the pension capital to the bank, which increases the mortgage amount by the amount pledged. This gives you additional borrowed capital for the purchase of residential property.

The conditions for pledging are similar to those of advance withdrawal. However, when you pledge the assets, they stay in the pension fund, which allows you to keep insurance coverage and retirement benefits. There are no taxes for withdrawing these funds, either, because the money is only collateral for the bank that it can access if needed. The pledge is governed by a special pledge agreement. Because the mortgage amount increases, there is higher mortgage interest in the event of a pledge. However, the debtors benefit from tax advantages.

Advance withdrawals and pledging of assets from the pension fund (PF)

  Advance withdrawal Pledging
Advantages + higher equity
+ lower mortgage, so lower mortgage interest
+ no reduction of benefits from the pension fund (if the pledge is canceled again)
+ requires less equity
+ no withdrawal taxes
+ you can still purchase pension benefits
Disadvantages – capital withdrawn must be taxed
– lower pension benefits including from lost interest and compound interest
– depending on PF, lower benefits for disability or death
– repayment obligation if real estate is sold
– no PF benefits can be purchased until the advanced withdrawal is repaid
– higher housing costs due to higher mortgage interest
– only possible if affordability is assured even with higher interest
– risk that pledge will be used

Speak with your pension fund well in advance

Whether you opt for advance withdrawal or pledging, it's best to get in touch with the pension fund at an early stage in both cases. Pension funds can defer the advance withdrawal by up to six months. In the event of a shortfall, the waiting time may be even longer. A shortfall means that the insurance company does not have enough money to cover the insurance benefits promised. In some cases, the pension fund can even deny the request for an advance withdrawal or pledge.

Before you take money from the pension fund to buy your own home, be sure to obtain a professional consultation so that you do not have pension coverage gaps upon retirement. It is important to cover any losses in the pension fund in good time.

Interested in using the pension fund to finance your own home? We'll be happy to advise you.

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