Pension provision and home ownership How young families can become homeowners

Those who combine their pension planning with their plans for home ownership can benefit twice over. Here are seven tips for doing just that.

by Jackie Bauer 02 Dec 2019

Illustration: Eva Revolver

To make the dream of home ownership a reality, a young family should start saving in good time. Financing a home usually requires considerable savings, including pension assets, along with borrowed capital. But with the right planning, there are financial rewards to be reaped. Here’s an overview of the seven most important points.

1. Lower living expenses

For a young family, buying a home can be cheaper than renting. Thanks to the current low interest rate environment, living expenses are falling, while the amount of income available for saving is increasing. This available income enables the family to close gaps that may have arisen in their pension funds or to put aside retirement capital on a voluntary basis.

2. Save on taxes through indirect amortization

A young family purchasing their own home should include ongoing interest and home maintenance costs alongside amortization payments and mortgage debt in their budget and pension planning. Indirect amortization is one way of paying off mortgage debt. It enables the homeowner to pay the maximum amount into Pillar 3a and benefit from the tax advantages, while saving up retirement capital and amortizing the mortgage.

3. Avoid dipping into the pension pot

When buying real estate at an early age, taking capital from the pension fund seems to be an obvious step – but it’s not always a smart move financially. Those with financial leeway should avoid dipping into the pension pot, instead leaving open the possibility of paying into their pension fund and saving on taxes. If retirement capital is used, however, pledging the pension fund assets may make better financial sense – the pension capital can be used for amortization at a later date.

4. Leave your pension intact as far as possible

If young families plan for the long term, it will be possible to top up the pension fund again after an early withdrawal so that there is practically no gap. The savings that result from buying a home should be re-used for retirement provision. However, even if this is not possible, the occupational pension will only be slightly lower, as the amount of capital available to young families to withdraw from their pension funds is only relatively small and happens at an early stage.

5. Think through the scenarios carefully

Anyone who buys a home must be able to earn a regular income in the long term – otherwise, they will not be able to service their mortgage if they have borrowed a relatively high amount against the property and have no financial cushion. Should the couple become divorced, this could lead to a forced sale of the property. And if housing prices have fallen in the meantime, the couple’s own capital or retirement savings could quickly disappear.

6. Plan for changing needs

The current family home may no longer meet the family’s needs in ten years’ time. If new capital is likely to be needed, this should be taken into account in the strategic planning to avoid big gaps in the pension fund.

7. Don’t forget Pillar 3a

We generally recommend that you do not neglect payments into Pillar 3a, even when buying a home, as the tax savings are worth making. Pillar 3a capital, like other assets, can be invested in equities or diversified portfolios such as UBS Vitainvest investment funds, thus making an additional contribution to building up retirement savings.

Pension provision and home ownership

This text is based on the UBS report entitled “Pension provision and home ownership.” You can download the report (available in German and French) free of charge to read more about this subject.