Using Swiss pension funds to buy property

From what I gather, it is possible to withdraw money from a Swiss pension fund and use that money to buy a property. Does that apply to any property purchase? How exactly does it work?

I know that money from a Swiss pension fund can be used towards buying a home. Does this also hold true for assets held in vested benefits accounts? I moved all my pension fund assets to two vested benefits accounts when I stopped working and would like to invest them in a house.

Using your occupational pension fund (pillar 2a) assets towards a down payment or mortgage amortization of a property is possible, but a number of requirements must be met.

Firstly, you can only use these assets to purchase a primary residence which you intend to live in. You cannot use retirement savings towards investment property or a holiday home. Secondly, You can only withdraw 2a assets towards a home purchase every 5 years. Thirdly, a minimum of 20,000 Swiss francs must be withdrawn.

When using pension fund savings to buy a home, you can withdraw 100% of the assets contributed to your fund before you turn 50 years old. Only a maximum of 50% of assets contributed after you turn 50 years old can be withdrawn towards a home purchase.

If you plan to use retirement assets from your occupational pension fund towards buying a home, it is important to inform your pension fund well ahead of time and have them provide you with a written confirmation before going through with the purchase.

Most pension funds charge a fee to process the withdrawal, and this fee can be as high as several hundred francs. For this reason, making a single, large withdrawal can be preferable to making multiple withdrawals (every 5 years, for example).

Assets which you withdraw from your pension fund are subject to taxation. However, the tax rates used for withdrawn 2a assets are lower than regular income tax rates. How much you pay in tax depends on which canton and municipality you reside in.

The obvious problem with withdrawing assets from your pension fund is that doing so can greatly reduce your pension. An alternative to withdrawing assets is to use your pension fund as collateral against a mortgage.

In this setup, you do not actually withdraw your 2a assets, but simply pledge them as collateral against a bank loan. Instead of requiring a 20% down payment – as is customary – the bank may only require a 10% down payment (or none at all) depending on how much collateral your 2a savings provide.

The benefit of leaving your assets in a pension fund and simply pledging them is that your assets continue to earn interest at a relatively high rate and your pension is guaranteed. You also avoid paying tax on savings because you do not need to withdraw them.

Yes. Laws regulating the withdrawal of pillar 2a savings apply to all retirement savings held in the second pillar (compulsory occupational pension funds). Whether your savings are invested in a pension fund or are placed in a vested benefits account, they can be withdrawn and purposed towards purchasing a primary residence.

Is it true that you have to repay money which you withdraw from your pension fund to buy a house?

Hi there,

You are only required to return occupational pension fund benefits withdrawn for the purchase of a primary residence if you sell (or otherwise transfer use of) the purchased property before you retire. In this case, you must return the full amount withdrawn to the pillar 2 unless you use the money to purchase a new primary residence within 2 years.

Another situation in which pillar 2 assets withdrawn to buy a home may need to be repaid is when you die before you reach retirement age and do not have dependents who are eligible to receive a pension from your pension fund.

When you are required to repay pillar 2 assets, you may apply for a tax refund for taxes paid on the withdrawn pillar 2 assets.

Although you are not obligated to repay pillar 2 asset withdrawals for home purchases, doing so can be advantageous. When you repay withdrawals, you can claim a tax refund for taxes paid when assets are withdrawn. You also return your pension to its former level (your pension is based on the amount of benefits in your pension fund). The interest which pension funds are legally required to pay on your benefits may be higher than what you could earn at banks. You can only make additional voluntary payments to your pension fund (to close salary gaps, for example) once your withdrawal has been repaid.

You can make voluntary repayments to your pension fund at any time until you retire.

Best regards from Moneyguru

Does this also apply to primary residences that are not in Switzerland, e.g. for frontalier suisse?

Hi afmass,

Yes, Swiss occupational pension fund assets (pillar 2) and pillar 3a tax-privileged retirement savings can be withdrawn in advance to purchase a primary residence outside of Switzerland.

The prime requisite is that the house serves as your primary residence. As a cross-border worker, you can withdraw your pension benefits to buy a primary residence in the country you live in.

Best regards from Moneyguru

I am looking to buy a property in my home country (UK) and would like to use the home ownership funds showing as available in my occupational pension fund. The property is for my own use and my elderly mother and we will be joint owners.  I visit the UK every month for approx 6 days per month (20%) so although it’s not my primary residence, it’s certainly not an investment.

Can I withdraw the assets even if I am still resident and working in Switzerland?  I don’t own a Swiss property.

Thanks

Hi GVAexpat,

The general assumption derived from laws governing early claims to pension fund benefits is that benefits can only be used to finance a primary residence. However, the law defines personal use like this: The use by the insured person at their place of residence or at their usual abode is deemed to be personal use. The law also makes exceptions: If the insured person proves that the use of the property is temporarily not possible, renting out the property is permitted during this period.

As you can see, the law leaves some room for flexibility. The clause allowing for withdrawals to purchase your usual abode primarily applies to cross-border workers who live in neighboring countries but work and have a secondary residence in Switzerland. However, if you spend enough time in the UK, your property could possibly be considered your usual abode, even though Switzerland is your place of residence.

What is clear in the law is that you can only use your pension fund benefits to buy co-owned property if the co-owner is either your spouse or your registered civil partner. This eliminates the option of using your pension fund benefits to jointly buy the property with your mother.

Best regards from Moneyguru

Hello,

When it comes to pledging your pillar 2a, will you be able to pledge only what has been contributed until the date of the mortgage, or can you use future contriubitions as well?

For example if if I plan to buy a flat for 1mchf, and have 100kchf in cash/3rd pillar, but only 50k currently paid into the 2a, will future contributions be able to make up for the missing 50k in 2a?

Thank you very much

Hi dg87,

Only your current pillar 2 occupational pension fund benefits can be pledged or withdrawn for the purpose of acquiring a primary residence.

You can pledge or withdraw pillar 2 assets for a primary residence every 5 years.

Best regards from Moneyguru

Dear money guru,

I am planning to buy a place using my 2nd pillar. However, despite Switzerland’s generous support during unemployed periods, I am trying to plan what my options could be if I did not manage to find a job in the allocated time and need to keep up my mortgage payments.

Financially it does not make sense to sell apartments shortly after buying them (within 5 years). If I was offered a job in another country, I would like to be able to take it. I understand that I cannot rent my apartment officially as my 2nd pillar will be registered in the apartment.

If I move country I can take out my 2nd pillar (all or part depending on location and EU or non-EU).

However, I am being told to access the money I would have to go through the process of paying it back into the 2nd pillar in order to take it out.

Does this seem normal? Does this process take long? Once I do this can I just pay it into the apartment to replace my 2nd pillar and then officially rent it out?

Is there anything more I should consider? 

I see above you wrote that the law allows you to rent your place out in unforeseen financial circumstances. Could you clarify more about this. As perhaps this covers the very situation which I am worried about. How long can you do this for?

Many thanks for your feedback.

Hi Vaudexpat,

The Swiss law governing the withdrawal of pillar 2 pension fund benefits for property ownership simply states that you have to prove that you are temporarily unable to use the property.

A needed move for employment- or career-based reasons is generally an acceptable reason to temporarily vacate your home. You simply need to furnish your occupational pension fund or vested benefits foundation with proof that you are moving temporarily for professional reasons.

The determining factor is whether the move is temporary or permanent. As long as the move is temporary and short- to mid-term, you should not encounter any issues.

Important: Owning a property in Switzerland makes you liable to pay certain taxes in Switzerland regardless of where you reside. Tax laws vary broadly between cantons. In order to avoid any possible tax issues related to renting out your home purchased with pension benefits, consulting with your local tax office before going ahead with your withdrawal and purchase plans is highly recommended.

Best regards from Moneyguru

Hello guru and thanks for helping.

I have two pension funds. One is the normal 2nd pillar and then another one called a supplementary pension. I have a mortgage with a company. We pledged the 2nd Pillar. The amount really would not be more than 50k. The company wants to play all amount from the 2nd pillar and it looks like it is not enough for them, so that they also would like me to pledge my supplementary pension. What should I do?

Thanks

Hi raul.lapaz,

As a general rule, indirect amortization of mortgages (pledging tax-privileged pillar 2 and 3a assets as collateral towards a mortgage without withdrawing them) is financially beneficial compared to direct amortization (withdrawing pillar 2 or 3a assets to amortize a mortgage).

You can find more information in the guide to direct vs. indirect amortization.

If your pillar 2 assets are not sufficient to cover your down payment or to meet mortgage payments for your first mortgage, you can also pledge possible pillar 3a assets towards your mortgage.

Pillar 3a assets include the cash value of pillar 3a permanent life insurance policies (savings insurance, insurance-based pensions), pillar 3a savings account balances, and the going value of pillar 3a retirement funds.

It is also worth noting that by reducing your mortgage, you lower the risk of failing to meet ongoing affordability requirements.

Best regards from Moneyguru

Hi there,

My wife (UK citizen) & myself (Spanish citizen) both Swiss residents, purchased our family home (two years ago) using our Swiss pilar 2 pensions.

In 6 to 8 years from now, we would probably leave Switzerland to travel around the world. At the time of leaving Switzerland, we would have owned our family home for 10 years. 

At the time of leaving Switzerland, we would have the following two options:

1) Selling our house.

2) Renting our house (preferred one)

My question is the following: would we need to repay back all the money used from our Swiss pilar 2 pensions in case of options 1 & 2?

Thanks a lot for your advice, Moneyland Guru!

Regards,

Antonio

Hi Antonio,

1. Buying

When you sell a property purchased using pillar 2 occupational pension fund benefits, you generally have to return the money to the pillar 2. However, if you expect to buy a new primary residence within 2 years, you can temporarily hold the money in a vested benefits foundation and then use it to buy your new home. Note that pillar 2 benefits can also be used to buy a primary residence outside of Switzerland.

2. Renting

If you can prove that you are temporarily unable to live in a primary residence purchased using pillar 2 benefits, you may rent out the property.

Best regards from Moneyguru

Thanks a lot MoneyGuru

In order to prove that temporarily we are unable to live in our primary residence, do you think that would be acceptable reasoning that at the time of wanting to rent out our primary residence both of us (my wife & I) are unemployed, therefore not able to afford living in Switzerland any longer & wanting to live in a cheaper country where we could use our rentals as a way of financing our cost of living abroad?

Who would we need to prove it? The Swiss Government or our pilar 2 pension providers?

Best regards,

Antonio

The law governing this is not very specific. It simply states that you must prove that you are temporarily unable to use the property. See Swiss law: WEFV Art. 4 Eigenbedarf

The general rule, as made clear in other rules governing the pillar 2, is that properties purchased using pillar 2 benefits cannot be rented out. The law linked above allows occupational pension funds and vested benefits foundations to make exceptions when you can provide proof that you are unable to use the property temporarily.

It is up to the pension fund or vested benefits foundation which paid out the pillar 2 benefits for the purchase of the property. As such, it is up to that entity to determine whether or not your situation qualifies as an exception.

A good first step would be to contact the relevant pension fund(s) or vested benefits foundation(s) and inquire as to their policy in this regard. Policies can vary between entities, and some are more accommodating than others with regards to pillar 2 withdrawals in general.

Thanks a lot MoneyGuru,

Another question related to our Pillar 2 company pension: When you reach retirement age (65 years old for men & 64 years old for women), what are the options to cash out your Pillar 2 pension? Are you able to cash out 100% of your pension (paying obviously reduced pension tax) or do you have to buy "annuities" until you die? Are there different options?

Best regards MoneyGuru....you are extremely useful!

Hi Antonio,

If you participate in a Swiss occupational pension fund when you reach legal retirement age (meaning you are employed by a Swiss company until you retire), then whether you can cash out any, some or all of your benefits in place of a lifelong pension depends on your pension fund's individual statutes. You can find more information here: Swiss pension funds: Lump sum or pension?

If you are not employed by a Swiss employer when you reach retirement age, your pension fund benefits will be held by a vested benefits foundation in a vested benefits account, retirement fund or life insurance policy. This is the case when you leave Switzerland for an EU country. Vested benefits can generally only be cashed out as a lump sum.

When you cash out your pension fund benefits or vested benefits, you pay a capital withdrawal tax. If you do not live in Switzerland, this is levied as a withholding tax by the canton in which the vested benefits foundation is domiciled. You can reclaim this Swiss withholding tax by providing proof of tax residence in a country with which Switzerland has a double-taxation agreement.

Vested benefits accounts can only be cashed out for retirement in full. To avoid withdrawing too large an amount of benefits in the same year and getting bumped into a high tax bracket, divide your assets between more than one vested benefits account (you can open 2 when you exit an occupational pension fund).

If, when you reach retirement age, you live in a country with which Switzerland does not have a double-taxation agreement, it is beneficial to transfer your vested benefits to a vested benefits foundation in a canton with a low capital withdrawal tax before cashing them out. The Canton of Schywz has some of the most favorable capital withdrawal taxes.

Best regards from Moneyguru

Hi Antonio

I have lived and worked in Switzerland for almost a decade. My Swiss fiancée and I are planning to permanently move to the Republic of Ireland (I'm Irish). We wish to withdraw early at least the extra-mandatory part of our 2nd pillar pension (for the purpose of buying property as a main residence) and are also considering withdrawing the whole amount. However, I cannot find anywhere the answers to the following questions and would be really grateful if you could help -

1. Ireland has a double taxation agreement with Switzerland. Having read through this, it is still not clear to me if we move to Ireland (and are then technically resident in Ireland), whether we must pay the Irish government tax on the 2nd pillar amount we have withdrawn, or do we pay only the Swiss tax authorities? Clearly paying the Swiss tax authorities would result in much less tax and would impact our decision on taking the 2nd pillar or not. I have searched everywhere for this answer and it is not clear to whom we would be liable to pay tax on the lump sum as newly resident in Ireland.                                 
2. Assuming the worst case scenario that we must pay tax on the 2nd pillar to the Irish tax authorities, is there any way to receive the 2nd pillar lump sum whilst still technically resident in Switzerland once we have informed the Swiss authorities we are leaving? In this way, we would still be legally resident and living in Switzerland and would therefore in this way only owe tax to the Swiss authorities before we establish ourselves as residents in Ireland. What I mean ultimately is, can you apply well in advance of leaving Switzerland for the lump sum (saying we are moving to Ireland), and receive the money before we depart Switzerland? If so, how much in advance should we apply for the 2nd pillar lump sum in order to receive it before we leave?                                               
3. This question is related to if we withdrew the full 2nd pillar with the intention of buying a house in Ireland. I read in the posts above that if we sell or rent our house that we bought with the full 2nd pillar, or use this money for something else after selling, we must pay back the sum of the mandatory part of the 2nd pillar that we withdrew. My question is if we move to my home country of Ireland and never return to Switzerland, can the Swiss authorities still legally require us to repay this later down the line even across international boundaries? From the point of view that I am not a Swiss citizen, do they still care about what I have done with my mandatory 2nd pillar money in 10 years time in another country if I sell the house or rent it out later on for example? Is there still an international requirement saying I must repay the 2nd pillar even if I am not living in Switzerland? With my future wife being Swiss, will they still require this of her as a Swiss national even though she would be living abroad? Or is it the case that we must only repay the amount if we move back to Switzerland one day (and this legally required after many years abroad)?

Apologies for the complex questions but we would both hugely appreciate if you (or anyone else) could take the time to help answer these points as with such matters of tax, we don't want to get a bad surprise later on.

Hi Shamrock,

1. Whether you are liable to pay taxes in Ireland on the withdrawn benefits depends on: whether you are tax resident in Ireland at the time of making the withdrawal; the tax laws of Ireland (whether the withdrawn benefits qualify as taxable in Ireland). If you are resident in Ireland when you withdraw the benefits to buy the property, then you are liable to pay applicable Irish taxes. The Swiss vested benefits foundation keeps a withholding tax, but you can reclaim this by proving tax residence in Ireland.

2. You should be able to withdraw the money to buy a property in Ireland while still residing in Switzerland, assuming you can prove that you will use it as your primary residence. If you make the withdrawal to purchase the property while you are still resident in Switzerland, you will pay the capital withdrawal tax in the Swiss canton in which you legally reside. Note that the capital withdrawal tax is different to the withholding tax which you pay if you withdraw benefits after leaving Switzerland. It is generally a fair bit higher, but also varies between cantons.

3. I don't know the details of the social security treaty between Switzerland and the EU or Ireland, but it is very unlikely that you will be hounded once you leave Switzerland. Even when you live and own a home in Switzerland, you have to self-declare a sale of your property to your pension fund or vested benefits foundation. This makes sense because of the Swiss tax benefits (the Swiss capital withdrawal tax is reimbursed when you refund the pillar 2 benefits). You can probably self-declare a sale of the property as a non-resident, but there is little incentive to do so if there is no tax benefit. This would only really be relevant if you moved back to Switzerland in the future.

Hope this helps, and good luck with your upcoming move.

I am interested in withdrawing 200K from my 2nd Pillar pension for a home purchase.  My total pension value is 350K.  I made a catch-up contribution to my pension in the amount of 125K this year. Here is my question:  Can I withdraw 200K from my pension to purchase a home and leave 150K in the pension?  I was told that that since I made a catch-up contribution to the pension that the whole amount of 350K is locked for 3 years.  Is this true?   Thanks or your help.

Hi jeffkwasny,

Yes, that is correct. Making a voluntary contribution to your pillar 2 occupational pension fund results in a 3-year waiting period for any benefit withdrawals. You can only withdraw benefits for the purpose of buying a primary residence after the 3-year waiting period expires.

Best regards from Moneyguru

Hi Guru, 

My latest pension certificate includes: 

* Purchase of additional retirement benefits for 2019: X

* Possible early drawing amount in favor of residential property as of 01.01.2020: Y

X is some amount I indeed paid into the pension fund, Y is some amount which is between zero and the total assets. Is it possible that the rule of 3-year waiting period for any benefit withdrawals varies from fund to fund? 

Could you point to the official rule (e.g. law) that would help me understand my situation?

Thanks a lot

Hi Farkasehes,

To clarify and expound on the previous answer: The 3-year waiting period for withdrawals applies to the benefits resulting from the voluntary contribution (amount paid in plus interest on that amount). The remaining portion of your benefits can be withdrawn for the purpose of purchasing a primary residence.

There is an exception to the rule: If you made voluntary contributions to your pension fund to close a gap created by a divorce, you are legally allowed to withdraw the resulting benefits (for the purpose of buying a primary residence, for example).

The 3-year waiting period for voluntary benefits withdrawals is a tax measure. It is meant to discourage the use of voluntary contributions and subsequent withdrawals as a means of bypassing income taxes in favor of lower capital withdrawal taxes.

Each occupational pension fund has its own terms and conditions within the boundaries of the laws governing the second pillar. In some cases, responsibility to ensure tax compliance may fall with you. Withdrawing voluntary contributions which are not exempted from the 3-year waiting period may result in those contributions losing their tax-deductible status retroactively.

A good first step would be to contact your occupational pension fund and ask them about both the legal and contractual rules pertaining to your specific situation. Asking the tax office about the rules which apply in your specific situation is also recommended.

You can find the basic rules governing the 3-year waiting period for withdrawals in the Swiss law governing occupational pension fund benefits (Art. 79b of the BVG/LLP).

Hi Guru 

I really appreciate your help.

We would like to know if we can withdraw our pension to buy our first and permanent house in Spain where we are living since the last year. 
I am working in Switzerland for a Swiss Pharma Company and we are frontalliers with tax address in France but because the COVID we are living in Spain for the last year because we are homeworking and the company allow us to work from Spain because it’s our choice and our kids are in Spanish school. The point is that we want to buy a house in Spain because we are living here and the company allow us to live here but I have doubts about if we can use the pension for the property. In the future the company relocate us in Spain.

Do you think that we can use the pension to buy our permanent house in Spain?

Dear guru

i forget to tell you that my husband is working and living for a Spanish company since 5 years ago. So our permanent home is Spain and I were traveling every week to Switzerland. We have two kids in a Spanish school. So we can probe that our permanent home is Spain.

You can use your Swiss pillar 2 (pension fund) benefits to buy a primary residence in Spain. This is true even if you work in Switzerland as frontaliers.

You can withdraw your benefits to buy the property either while you are living in Switzerland or after you move back to Spain.

I'm not 100% sure how taxation of property purchase withdrawals works for frontaliers. Either you would pay Swiss capital withdrawal tax on the benefits based on your workplace or your pension fund(s) will deduct a Swiss withholding tax. Either way, if you have tax residency in Spain you can reclaim the Swiss withholding taxes under the double taxation agreement as far as I know.

If you withdraw your benefits after moving back to Spain, a Swiss withholding tax will be deducted by the Swiss vested benefits foundation. You can reclaim the Swiss withholding tax by proving tax residence in Spain.

If you are older than 50: There are limits on how much of your benefits you can use to buy your property. You can only withdraw the benefits you earned up to age 50.

Hi Guru,

A couple more questions!

1. If I apply to withdraw my pillar 2 pension to buy a property, how long is the application process roughly? 1 month, 3 months 6 months etc.

2. If I apply to withdraw my pillar 2 pension as a resident in Switzerland but during the processing timeframe I become resident in another Country, where would the tax be liable? Is it the Country at the time of application or the Country at the time the money is received? 

Many Thanks

Answer to question 1: The time required between the application for an early withdrawal for home ownership and the transfer varies between pension funds. The minimum time frame is generally stated in the statutes of your pension fund or vested benefits foundation. Typically, the money is paid out a minimum of 6 weeks after application. You can keep the time required to a minimum by providing all necessary documents at the time of application or shortly thereafter.

Answer to question 2: You are tax liable in your country of legal tax residence at the time that you receive the money. In Switzerland, you are generally tax resident in the canton in which you reside on December 31. Other countries have their own rules governing the length of time you must reside there or the time of year at which you must be resident to be a tax resident. For example, you may need to have a special residence status or live in a country for 6 months out of 12 to be considered a tax resident in some countries.

If you are resident in Switzerland when the money is paid out, your Swiss pension fund or vested benefits foundation informs the Swiss tax office of the withdrawal to ensure that it is properly declared. If your tax residence is outside of Switzerland at the time that the money is paid out, the pension fund or vested benefits foundation will retain a withholding tax. You can reclaim the Swiss withholding tax if your country of tax residence has a relevant double-taxation agreement with Switzerland.

If you are planning to move to a country outside of EFTA or the EU, withdrawing on the basis of leaving the country might make more sense than withdrawing on the basis of buying a property, as there are much fewer requirements and ongoing requirements.

Dear Guru,

If I buy a property using funds from my second pillar, as long as I make it my primary residence, can I rent out a room from the property to a tenant?

Thanks!

No problem at all. The law only specifies that you must use the property as your primary residence.

In fact, you can legally rent it out completely for a time if you can prove that you are temporarily unable to use it.

I'm an American who has moved to Switzerland with my Swiss wife and our children. I have a fairly substantial 401(k) from my previous employment in America. Do you know if it's possible use retirement assets from another country as collateral for a mortgage in the same way as one can use money in a Swiss pension fund?

Hi tim.wormus,

As a general rule, Swiss banks only use Swiss pillar 2 (when possible) and pillar 3a retirement-saving vehicles for indirect amortization.

Best regards from Moneyguru

Hello

I have made voluntary payment to my 2nd pillar last year and deducted the amount (50 k) from taxable revenue. My 2nd pillar funds before that voluntary purchase were 150k now it’s 200k. I read somewhere that for 3 years I can’t withdraw the funds for property ownership, but I am not sure if it concerns the base, or the voluntary purchase amount. My questions would be:

- how much can I withdraw (if any) of the total 200k amount and what would be tax implications

- how much of the total 200k can I pledge against the mortgage 

thank you

The 3-year waiting period is for the voluntary benefits only. In you case, you could withdraw up to 150k (the mandatory benefits). The other 50k can only be withdrawn 3 years after you made the voluntary contribution.

The capital withdrawal tax applies if you withdraw the benefits instead of pledging them. You can find a chart which gives a good idea of how much capital withdrawal tax you can expect to pay in your canton on page 6 of this document: https://www.vermoegens-partner.ch/dokumente/662_Kapitalauszahlungssteuern-Pensionskasse.pdf

For 100k, you would pay CHF 2348 in Schwyz (the cheapest canton) and CHF 7675 in Appenzell Ausserrhoden (the most expensive). The tax is progressive, so the more you withdraw, the higher the tax ratio is.

I don't think the 3-year waiting period applies when you pledge your benefits as securities against a mortgage, because you aren't withdrawing them. In all the rules, as far as I can see, the waiting period only applies to withdrawals. But your pension fund would be the best place to get effective information.

In my opinion pledging is generally better than withdrawing. Swiss banks tend to give you more favorable mortgage conditions when you pledge because Swiss pension fund benefits are a good security. For example, you may get away with a lower down payment (10% instead of 20%). And you don't pay the capital withdrawal tax.

The only disadvantage is that your mortgage is higher so you may pay more interest. But there is also the tax advantage of the income tax deduction for interest charges and the wealth tax deduction for debt.

Just ask your pension fund if you could pledge the full 200k with the voluntary benefits for buying a home. If this is possible, that would be a strong argument for pledging rather than withdrawing.

Hello. I read on a different post that you can only withdraw 50% of your Pillar 2 to purchase a home if you are 50 years old or over. Is this the case for vested benefits accounts as well? What if you are withdrawing the funds to purchase a primary residence in France? Many thanks for your clarifications.

After the age of 50, you are only allowed to withdraw either the benefits which you accumulated before the age of 50, or half of your benefits (whichever is more). This applies to vested benefits as well. The same rules apply regardless of where the property is located.

If you and/or your employers have made voluntary payments to your pension funds above what the law requires, you can withdraw those voluntary benefits when you move to France. But otherwise, you are confined to the standard limitations on withdrawing benefits.

I have two vested benefit accounts here in Switzerland and I am over 50 years of age.

I am planning to leave Switzerland later this year permanently to an EU country.  Can I use the vested benefits accounts to part fund (either cash or collateral) our new permanent residence in the EU before I leave Switzerland?

If you will use the money to buy or renovate a home in your new country of residence which you will use as your primary residence, then you can cash out vested benefits for that purpose.

From age 50, there is a limit for withdrawals to buy a home. That limit is the higher of these two:

1. The benefits which you accumulated up to the age of 50.
2. Half of your total benefits.

Obviously, for most people, the first will apply, unless you get a really high-paying job after 50.

If you or your employer made extra, voluntary contributions, the benefits resulting from those voluntary contributions can be withdrawn in full when you leave Switzerland for an EU country, even if you are not buying a home.

You generally can only withdraw the benefits after you have moved because many vested benefits foundations require proof that you are tax resident in another country before you can withdraw. Some foundations only require definite proof that you are leaving Switzerland (proof of deregistration to move abroad from your Swiss municipality, for example).

As far as I know, EU countries all have double-taxation agreements with Switzerland. That means you can reclaim the Swiss withholding tax which is deducted when you withdraw, after you provide proof that you are tax resident in your new country.

Read it somewhere up the thread and just want to be sure. I am buying a house as primary residence in CH with my partner, we are engaged but not yet married or registered as civil partners. Can I still use my 2nd pillar? 

The general rule is that you cannot. Sharing ownership of a home with a partner whom you aren't married to is, from a legal perspective, exactly the same as sharing ownership with a person whom you are not romantically involved with.

The problem is this: In Switzerland there are rules which dictate who inherits pension benefits.

If you are married or registered partners, then you generally inherit the property and become its legal owner if your partner dies (and vice versa). This is compatible with Swiss providence rules because it ensures that you or your spouse have a place to live in your old age, which is what the second pillar is for.

But if you are not married and one of you dies, their portion of ownership in the house would normally fall under their estate, and their legal heirs could claim their minimum inheritance shares (Moneyland has a good article on this topic here: https://www.moneyland.ch/en/inheritances-switzerland-rules).

The only way to be able to keep using the property after your partner dies (or vice versa) is for you to give each other usufructuary rights to your home. This legal arrangement allows the other person to use the property even though they do not own it.

Giving usufructuary rights over a property to another person is generally considered to be on par with selling your property. Since you are not allowed to withdraw pension fund benefits to buy a property which you will sell immediately afterwards, you are generally not allowed to use benefits to buy a property with usufructuary rights.

There is an exception to this rule:

If your partner is named as the benefactor of your pension fund in your pension plan agreement, then you can use your pillar 2 assets to buy a home with usufructuary rights. The same applies to your partner.

Buying a home without usufructuary rights

If both you and your partner are able to name each other as the sole heir to the property in your legal wills, then you can generally use pension fund benefits to buy the property because no usufructuary rights are needed.

This could be done, for example if:

• Neither of you has any legal heirs.
• You have enough other assets to be able to satisfy the mandatory inheritance shares of legal heirs without your home being affected. In other words, the home falls under the portion of your assets which are not subject to mandatory inheritance shares.
• All your legal heirs relinquish their inheritance rights.

I withdrew funds from my Pillar 2 pension account to help with the purchase of my home. Now that I have taken possession of my home and have moved in, can I pay back the portion or part of the portion of the withdrawn amount to Pillar 2?

If it was possible, would I be refunded the tax that I paid for early withdrawal? I paid tax for the early withdrawal by a canton with higher tax and now I reside in one with lower tax.

Are there any advantages for paying back to my Pillar 2 pension account?

Thank you.

Yes, you can voluntarily repay the money withdrawn to buy a home. You can then reclaim the taxes paid when you withdrew. Voluntary repayment is possible up until 3 years before you can claim a pension or withdraw capital, as per your pension fund agreement. You also will no longer be able to make voluntary repayments after you claim other pensions (e.g. a disability pension) from your pension fund.

To reclaim the tax money, you have to sumbit these documents to the tax office:

• A certificate from your pension fund certifying the voluntary repayment.
• A statement from the federal tax department certifying the amount you withdrew from your pension fund to buy your home.
• The tax statement showing how much tax you paid on the withdrawn pension capital at the time of withdrawal. If you don't have this anymore, request it from the tax office in the place you lived at the time you withdrew.

It does not matter if you now live in a different canton. You will be reimbursed for the full amount you paid in taxes. If you only repay part, then you will get a percentage back equal to the percentage of the amount you repay.

The tax reimbursement is the main advantage of repaying the withdrawal. Other possible advantages are:
You will get a higher pension

• The money you repay will no longer count towards your taxable wealth once it is in your pension fund.
• If the canton you live in when you end up withdrawing the capital (when you retire) has a lower tax rate than the canton where you made the home-purchase withdrawal, you will save money by reclaiming the high tax from the canton where you withdrew for the home purchase, and then paying the low tax in your current canton when you retire.

Possible arguments against repaying the money are:

• You may earn higher returns outside of your pension fund. Pension funds pay interest on your capital. But over very long periods of time, you may earn higher yields by investing the money in the stock market instead. If your retirement is 20 years away or more, then the returns you could possibly earn by investing in the stock market may end up being higher than the taxes you would save plus interest from your pension fund. Historically, this has largely been the case, but there is no way to predict how the stock market will perform in the future. If you want clearly-calculable yields and tax savings with very little risk, then repaying your pension fund is the better option.
• The creditworthiness of your pension fund. Before making any voluntary payments to your pension fund, it's worth checking how financially healthy the pension fund is. The LOB Fund guarantees compulsory benefits in pension funds, up to a certain limit, but there is always a chance of losing money if your pension fund goes bust. Bankruptcy is obviously the worst-case scenario. But if your pension fund is unhealthy, your ability to make early withdrawals (for renovations, to become self-employed, etc.) will be limited, and other disadvantages may also apply. Only make non-obligatory payments to your pension fund if it has a "Deckungsgrad" above 100. You can find recent ratings for some Swiss pension funds here (PDF download at the bottom): https://www.pensionskassenvergleich.ch/pkvergleich/pk-vergleich-2020/kennzahlen/index.php

Dear all, 

I have been working and living in Switzerland for 6 years but might decide to move back to my home country France. I have learned that my 2nd Pillar will be transferred to a blocked vested benefits account until I reach retirement age. However, can I still use this money for the purchase of my main residence in France once I have moved there permanently?

Thank you very much for your help. 

Best, 

Jeremy

Hi Jeremy,

The answer is yes, you can. I recommend this article from moneyland which covers this topic in detail:
https://www.moneyland.ch/en/buy-property-swiss-pension-fund-pillar-3a-guide

I hope this answers your question.

P.s. If you have any voluntary benefits (e.g. you and/or your employer have made more than the compulsory payments to your pension fund, or you made voluntary buy-ins), you can withdraw those when you leave Switzerland. Only the compulsory benefits must remain in a Swiss vested benefits account (barring early withdrawal for home ownership, etc.).