Capital for owner-occupied residential property: how much you can withdraw from your pension fund

To pay for an owner-occupied residential property, you can by law (see questions and answers below) withdraw some or all of your retirement assets from your pension fund (OPA). This applies to the purchase or construction of property, but also to renovation work and repaying the mortgage. You can find out how much money is available from the 2nd pillar to pay for your own home by looking at your pension statement.

When financing your own home, you must have enough equity to cover at least 20 percent of the property’s market value. The lender may even require a higher level of equity, depending on the affordability calculation. However, if you decide to use equity from the 2nd pillar, at least 10 percent of the property’s market value must come from sources other than the pension fund. Withdrawal from the 2nd pillar is permitted only if sufficient free equity is available.

Example: the property’s market value is CHF 1,500,000

• Equity required: CHF 300,000 (20% of market value)
• “Free” equity required (not from pension fund; e.g. anticipated withdrawal of 3rd pillar, account balances, gifts): CHF 150,000 (at least 10% of the market value)
• Withdrawal from pension fund CHF 150,000

Other provisions on anticipated withdrawal for your own home

In addition to the 10 percent rule, the following provisions also apply to anticipated withdrawal to buy your own home:

• Partial withdrawals can be made no more than every five years.
• The minimum amount per withdrawal is CHF 20,000.
• Full withdrawal can be made only up to the age of 50.
• Over the age of 50, a maximum of half of the saved capital or the capital in the account when the age of 50 is reached can be withdrawn. The smaller amount applies.
• Anyone who is married requires their spouse’s written consent.
• When selling the property, the money withdrawn early must generally be paid back or used to buy another property, whereby the amount withdrawn can be transferred to the new home.
• The deadline for anticipated withdrawal is three years before reaching entitlement to retirement benefits.
• In the event of a shortfall, for as long as this applies, the employee benefits institution may impose time limits on, reduce the amounts of or completely refuse pledges, anticipated withdrawal and repayment.

Pros and cons of anticipated withdrawal to buy your own home

The advantage of anticipated withdrawal is that it allows you to increase your equity capital share. This means you’ll have a smaller mortgage and lower interest payments. But you also need to bear in mind that less mortgage interest will then be exempt from tax.

There are also some downsides to early withdrawal: it creates a gap in retirement assets that will have a negative impact on your pension. Ideally, you should close this gap before retirement – either by means of repayment or by offsetting it with another retirement planning solution. Insurance benefits covering death or invalidity may also be reduced.

Tax is liable on the amount withdrawn

Capital withdrawal tax has to be paid when withdrawing retirement assets from both the 2nd pillar and pillar 3a. The tax rates differ from canton to canton.

The capital withdrawn and income are taxed separately, and progressive taxation applies in both cases. That means the more money you withdraw in a year from the 2nd and 3rd pillars, the higher the rate of capital withdrawal tax. However, you don’t have to worry about being moved into a higher income bracket due to the withdrawal payment or all your income being taxed at a higher rate during the year concerned. Income tax isn’t levied on capital withdrawal.

It’s also worth remembering that if the money withdrawn early is paid back, you can claim the capital withdrawal tax paid. This means that the final tax bill can be deferred until retirement. No tax-privileged purchase of benefits can be made in the 2nd pillar until all the capital withdrawn early is repaid.

Pledge – an attractive alternative to withdrawal

Another way of using pension fund assets to purchase a home is the pledge. In this case, the funds remain in your account, but the lender is entitled to access them if you’re unable to pay your mortgage.

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