Pledging of pension fund assets
Guide

Pledging of Pension Fund Assets to Purchase Residential Property

Anyone who wants to finance a home with money from the pension fund can pledge the assets. The money remains in the pension fund and most of the insurance coverage remains unchanged – the money is used only as collateral by the bank if absolutely necessary. However, pledging results in a higher interest rate because a larger mortgage is needed. 

Pledging pension fund assets to buy a residential property results in additional debt capital. Because this makes the mortgage amount higher, the mortgage interest is higher too. However, the debtors receive tax advantages, and they receive the same benefits when they retire while retaining the insurance coverage.

Up to age 50, the entire vested benefits can be pledged to the bank. After age 50, you can pledge either the value of the assets at age 50 or half of the current vested benefits – whichever is higher. This can be done up to three years before normal retirement, unless the pension fund has a more favorable regulation. The same restrictions also apply to the advance withdrawal of pension fund assets. 

Using an example with three different ages, this would mean:
Age 50
Vested benefits
Maximum amount available for advance withdrawal
CHF 100,000
CHF 100,000
Age 55
Vested benefits
Maximum amount available for advance withdrawal (vested benefits at the age of 50)
CHF 150,000
CHF 100,000
Age 60
Vested benefits
Maximum amount available for advance withdrawal (half of the current vested benefits)
CHF 240,000
CHF 120,000

The Pledge Agreement Governs All Formalities

The pledge is stipulated in a special pledge agreement. This agreement states, among other things, what amount the debtor is giving the bank as collateral. There are two options: 1) pledging the entire vested benefits; 2) pledging the actual amount necessary. Moreover, the pledge agreement states what happens if someone leaves the pension fund without joining a new pension fund. This may be the case for instance if you become self-employed, unemployed, or emigrate to a foreign country.  

Reduction in Benefits If the Pledge Is Realized

In the case of pledging, the retirement savings are regarded as a guarantee. Pension capital is pledged to the bank and the amount of the mortgage can be increased by the same amount. A pledge results in a reduction of pension benefits only if the pledge is realized.

The Advantages and Disadvantages of Advance Withdrawals at a Glance

Advantages 
  • You do not have to pay additional taxes if the money does not have to be disbursed.
  • You will not have any extra pension gaps; the benefits from your pension fund will remain unchanged. 
  • You will pay lower taxes, because you can deduct the higher interest from your taxes.
  • You can still make voluntary purchases of pension benefits.
Disadvantages 
  • You will have a higher mortgage and therefore higher mortgage interest.
  • You will have increased housing costs.