Pillar II funds for EU property

Hello! Due to unforeseen circumstances I am forced to leave the Swiss dream behind and need to relocate back to my country of origin (Latvia) in 2026.

Thanks to the MoneyLand guide here, I understand there is this option of using Pension II pillar funds entirely to mortage a home, even in Latvia. As I am still decades away from pension age, this seems like a great opportunity. 

While this guide is a lifesaver, I would like to reconfirm over some circumstantial specifics:

1. The rule, as I understand is that typically the Pension II pillar usage for a home may be half of the 20% downpayment - so 10% in total.
However, since I haven't lived in my home country for 7+ years, the local banks ask 50% downpayment. In this case, can the downpayment from the Pillar II fund be 25% of the 50% that the bank is asking me? 

2. Since I will have to deregister from Switzerland when I leave, and the home in Latvia would become my primary residence, I read (from somewhere else) that I only have 6 months to "decide" what to do with Pension II funds when leaving Switzerland to an EU/EFTA country, and afterwards Pension II funds become locked until retirement. Is that accurate information?

3. In case the previous point is accurate, it would mean I would not be able to first use a portion of Pension II funds for downpayment, and 5 years later renovate or extend the building using rest of the Pension II funds, right? 

4. How would the process look like from the beginning, such as, how do I prove to a local Latvian bank that my Pension II pillar will be party used for downpayment? And how do I time the Switzerland deregistration witth new home as primary residence with request the Pension II pillar company to make the payment? Would the payment by Pillar II funds company be done to my local bank account for me to pay the 20% mortgage at once, or they will do it directly to my local bank by themselves?

5. Are there any other specifics or gotchas to know before jumping in all this? Would be wonderful to hear about some experiences, or how early should one start to prepare. 

Thank you!

Hi rebanehv,

Thank you for using moneyland.ch.

Here are the answers to your questions. I hope this helps:

1. The requirement with regards to the 20% downpayment and the requirement for half of this to be funded by capital outside of your pension fund are both Swiss banking guidelines from the Swiss banking association SwissBanking. As such, they only apply to Swiss banks.

2. You can make an early withdrawal of your Swiss pension benefits to finance a primary residence at any time. There is no 6-month limit for making this decision. When you leave your Swiss employer or stop being subject to Swiss social security, you will have to leave your Swiss occupational pension fund. Because you will live in an EU country, you will have to transfer your benefits to a Swiss vested benefits foundation. However, you can make early withdrawals for home ownership from a vested benefits foundation in just the same way that you would claim withdrawals from your pension fund. The rules are the same in both cases. The only time-based limit for making early withdrawals for home financing is that you cannot make these withdrawals in the last three years before retirement age.

3. You can make a withdrawal every 5 years. However, the minimum amount you can withdraw is 20,000 francs per withdrawal.

4. For Swiss properties, the law requires an entry to be made in the land register which records the amount of Swiss pension benefits used for the purchase. However, the rules governing how this is applied to properties in EU countries are not clear. For this reason, the process will differ depending on your pension fund/vested benefits foundation. You may need to provide a guarantee that the money will be used to finance a property, such as an escrow account at your Latvian bank that can only be drawn on for home financing. It can be beneficial to enquire at Latvian banks and explain your situation

5. Here are a couple of tips.
Tip 1: Account for taxes. Withdrawals you make to finance a home outside of Switzerland are subject to the Swiss withholding tax. This will be deducted from the withdrawal, so you should account for it when deciding how much to withdraw. The withdrawal will be taxed in the canton where the vested benefits foundation is located. The canton of Schwyz has the lowest withholding tax rates. You can reclaim the Swiss withholding tax in arrears by proving your tax residence in Latvia. If a withdrawal of Swiss pension benefits is taxable in Latvia, then you should account for the Latvian taxes as well. Accounting for all taxes, including those you can reclaim later on, will help you avoid situations in which the post-tax withdrawal is less than the amount required for the property.
Tip 2: You  If you plan to make a home financing withdrawal in the near future, then it is advisable to place your vested benefits in a vested benefits savings account rather than an investment solution. That way there is no risk of your benefits losing value ahead of your making the withdrawal. You can compare savings accounts here: Swiss vested benefits account comparison
Investing your benefits with a retirement fund or robo-advisor should only be a consideration if you will only make the withdrawal in at least 10 years.

Best regards,

Daniel Dreier