Never paying rent again, owning your own home – this is the dream of many Swiss people. But this dream fails to become reality for many people due to their lack of equity. To finance the purchase of a home you usually have to put down equity of 20%. However, it is still possible to finance the purchase of a home even with almost no cash in hand. You can, for example, withdraw or pledge the capital you have in your company pension plan (second pillar) or in your individual retirement savings (third pillar). Under the home ownership encouragement scheme, you can use these funds to purchase a home in which you will live, to participate in such a home (e.g. cooperative shares), or to repay a mortgage on a home you live in.
Financing without equity using second pillar retirement funds
You can decide whether to take an early withdrawal from your pension fund or to pledge your funds and receive a higher mortgage in return. Many people decide for the second option, as it does not impact the pension benefits. In addition, it also saves on taxes, since you can deduct more interest payments from your taxes because of the higher mortgage. And there are no premiums to be paid for any additional insurance. If you decide for the first option, you should be aware that your pension benefits could be reduced in most cases at the time of retirement or in the case of death or disability.
When and how often can I make early withdrawals from my retirement assets?
In principle, early withdrawals are possible every five years. You can make early withdrawals under the home ownership encouragement scheme up to three years before you start to claim your retirement benefits from your pension fund. Until you reach the age of 50 your entire vested benefits are available under the home ownership encouragement scheme. After age 50, you can access the higher of the following two amounts: the amount of vested benefits that you would have been able to claim at age 50 or half of the vested benefits at the time of withdrawal.
What to watch out for when purchasing a home
Buying a home does not have to be a decision for life. What happens with the early withdrawals you have made if you later want to sell your house or condominium? Do the early withdrawals have to be repaid? Yes. The "BVG sales restrictions," which are in the land registry, provide that the early withdrawal must be repaid through the sale.
What are the tax implications of pension fund withdrawals made under the home ownership encouragement scheme?
In all cantons, lump-sum payments are subject to a tax that is separate from normal income tax. The tax is 10% on average of the early withdrawal, depending on the canton, municipality or the amount of the payment. You cannot use the amount paid out to pay the tax. No tax is levied in the case of a pledge. These are not due until a pledge is realized. If the early withdrawal for the encouragement of home ownership is fully paid back, you have the option of buying into your pension fund again, with the accompanying preferential tax treatment. In addition, you can, within three years of the respective (partial) repayment, ask for a refund of the taxes you paid at the time the assets were paid out.
Encouragement of home ownership with the third pillar
You can also use funds available in your third pillar to purchase a home or condominium. Just as with the second pillar, you have two options under the home ownership encouragement scheme for using the retirement money you have saved. You have the option of early withdrawal of the pillar 3a funds to purchase a home (withdrawals possible every five years). And you have the option of pledging the retirement savings and benefiting from the preferential tax treatment. Just as with assets withdrawn from your pension fund, the capital paid out of pillar 3a is subject to tax. However, unlike with the second pillar, you do not have to pay back these early withdrawals if you sell your home.