Using your pension fund to buy a home: early withdrawal and pledge

What can the pension fund money be used for?

A home-ownership withdrawal is only allowed for owner-occupied property at your place of residence or usual abode, in Switzerland or abroad. Permitted uses are buying or building a flat or house, value-adding investments, paying down an existing mortgage, and buying shares in a housing cooperative whose flat you live in yourself.

Not allowed: holiday homes, second homes, buy-to-let properties, routine maintenance or paying mortgage interest. The legal basis is Art. 30a-30g LPP/BVG and the Ordinance on Home Ownership Promotion using Occupational Pension Funds (WEFV/OEPL).

Early withdrawal or pledge?

With an early withdrawal, part of your savings is paid out and goes into the property as equity. With a pledge, the savings stay in your pension fund; you pledge them to the bank as security, which often allows a higher loan-to-value ratio or less direct amortisation.

The rules for a home-ownership withdrawal

Minimum amount: a withdrawal must be at least CHF 20,000. This does not apply to housing cooperative shares or to savings held with vested benefits institutions. Frequency: you can only make a withdrawal once every five years.

Age limit: a withdrawal is possible until three years before you become entitled to retirement benefits. With a reference age of 65, that is usually until 62, but your regulations may set an earlier retirement age and bring the deadline forward.

Maximum from age 50: until 50, you can in principle withdraw your entire vested benefit. From 50, the withdrawal is limited to the higher of two amounts: the vested benefit you had at 50, or half of your current vested benefit.

Formalities: married people and registered partners need their spouse's written consent. A restriction on sale is entered in the land register so that the money flows back to the pension fund if the property is sold. Many funds charge a processing fee and need a few weeks to pay out.

Tax on the withdrawal and getting it refunded

The withdrawal is taxed as a lump-sum benefit in the year it is paid out: separately from your other income and at a reduced rate, at one fifth of the ordinary scale for federal tax, and under each canton's own scale. Depending on canton and municipality, a withdrawal of CHF 100,000 costs roughly CHF 3,000 to CHF 9,000 in tax. For your own case, use the tax calculator of the Federal Tax Administration (ESTV/AFC) or your canton.

If you repay the withdrawal later, you get the tax you paid refunded, without interest. You apply within three years of the repayment to the tax authority that levied the tax. The repayment itself is not deductible from income.

Worked example: CHF 100,000 withdrawn at 45

Ms Brunner, 45, has CHF 300,000 in her pension fund and buys a flat for CHF 900,000. She withdraws CHF 100,000 as equity. We assume interest on her savings of 2% a year until 65 and a conversion rate of 5.5% at 65.

Without the withdrawal, those CHF 100,000 would have grown to about CHF 148,600 by 65. Her retirement savings at 65 are lower by that amount, and her pension falls by about CHF 8,170 a year, or CHF 681 a month, for life. On the other side is a smaller mortgage: CHF 100,000 less mortgage at 2% interest saves about CHF 2,000 in interest a year.

Impact on risk cover and buy-ins

Depending on the regulations, a withdrawal also reduces your disability and death benefits, especially in funds that base these benefits on your retirement savings. Your pension fund must offer or arrange supplementary insurance to close the gap; look into it, especially if you have children.

As long as the withdrawal has not been repaid, voluntary buy-ins into your pension fund are not possible (Art. 79b para. 3 LPP/BVG). The exception is a buy-back after divorce. If you are planning buy-ins to optimise tax, repay the withdrawal first.

Repayment: voluntary or mandatory

You can repay the withdrawal voluntarily in instalments of at least CHF 10,000, currently in principle until you become entitled to retirement benefits under your regulations, until another insured event occurs, or until a cash payment. If the outstanding amount is smaller, you repay it in one go.

Repayment is mandatory if you sell the property or grant rights over it that are economically equivalent to a sale, or if no pension benefit becomes payable on your death. If you reinvest the proceeds in a new owner-occupied home within two years, you can transfer them to it.

Pillar 3a and home ownership

Your pillar 3a savings can also be withdrawn early or pledged for an owner-occupied home, likewise only once every five years. Many buyers combine the two: 3a savings as equity, and the pension fund as a pledge or for indirect amortisation. Bear in mind that lump-sum withdrawals in the same year are added together for tax.

Use our mortgage calculator to check whether your mortgage stays affordable after retirement. In RetirePlan, you can model the effect of the withdrawal on your pension, budget and assets in unlimited scenarios, free. If you wish, an analysis with an expert is available as an option.

Frequently asked questions about home-ownership withdrawals

How much pension fund money can I withdraw for a home?

Until 50, in principle your entire vested benefit. From 50, no more than the higher of your vested benefit at 50 or half of your current vested benefit. The minimum is CHF 20,000.

Up to what age can I make a home-ownership withdrawal?

Until three years before you become entitled to retirement benefits, so usually until 62 with a reference age of 65. If your regulations allow earlier retirement, the deadline can end sooner.

How is a home-ownership withdrawal taxed?

As a lump-sum benefit in the year of withdrawal, separately from your other income and at a reduced rate. If you repay it, you get the tax back without interest, provided you apply within three years.

Which is better: early withdrawal or pledge?

A pledge preserves your retirement savings and costs no tax, but means a larger mortgage and more interest. A withdrawal lowers your mortgage, but also your pension and, depending on the regulations, your risk cover. Run the numbers on both options.

Do I have to repay a home-ownership withdrawal?

Only if you sell the property (unless you reinvest within two years), grant equivalent rights over it, or if no pension benefit becomes payable on your death. You can repay voluntarily in amounts of CHF 10,000 or more.

Can I still make buy-ins after a home-ownership withdrawal?

Voluntary buy-ins are only possible once the withdrawal has been repaid. Exception: a buy-back after divorce.