For a home of your own: Use Pillar 3a for residential property

Anyone in Switzerland who is lacking equity capital to purchase their own real estate can use Pillar 3a funds for residential property. Read this article to find out how this is possible and what you need to note for pledging and withdrawing Pillar 3a assets.

Under the promotion of home ownership (WEF), it is possible to use funds from retirement provision for an owner-occupied home. You must provide at least 20% of the purchase price of the property from your own funds. One way to do this is to tap into the tied private pension – Pillar 3a.

Using Pillar 3a capital is possible when financing owner-occupied residential property, renovating or remodeling an owner-occupied home, or when repaying an existing mortgage. Pillar 3a funds can either be withdrawn in advance or pledged for residential property. Pillar 3a can be used in the context of the promotion of home ownership every five years. Spouses or registered partners are considered separately under this scheme, as they have a right to their capital independently of the other person.

Pillar 3a fund withdrawal is regulated by law

The law permits the withdrawal of Pillar 3a assets in the following cases: As part of the promotion of home ownership, when you become self-employed, if you emigrate, to purchase pension fund benefits, or if you become eligible for a disability pension. Partial withdrawals of Pillar 3a assets are permitted up to five years before reaching the reference age. After that, you are only able to withdraw the total assets from the Pension account – 3rd pillar or Pension securities account – 3rd pillar all at once. You can also continue to make the regular deposits up to the statutory maximum if you make an advance withdrawal or a pledge. Capital payouts are subject to tax.

If you make an advance withdrawal from Pillar 3a, the existing capital can be withdrawn in parts or all at once. In contrast to a second pillar (pension fund) withdrawal, there is no minimum amount for an advance withdrawal from Pillar 3a. The amount of the advance withdrawal can be used to cover the required equity capital when taking out a mortgage.

It is also possible to reduce your mortgage by increasing the equity capital. This also lowers the mortgage interest rate. With the smaller mortgage and lower mortgage interest rates, however, there is less scope for tax deductions.

Upon payout, the capital withdrawn from Pillar 3a is taxed at a lower rate, separate from the rest of your income. All payouts that are made in the same year are counted as one, and in most cantons this also includes those of spouses or registered partnerships. There are large regional differences in the taxation of pension capital. In some cantons, the taxes are up to three times as high as in others.

Throughout Switzerland, no repayments are possible after Pillar 3a funds are withdrawn – unlike with a second pillar withdrawal. Each year, you can continue to deposit only the statutory maximum. In 2023, this amount is CHF 7,056. Employed persons who are not members of a pension fund may deposit 20% of their net earnings per year up to a maximum of CHF 35,280 (as of 2023). The more money you take out of your private tied pension provision, the smaller the accrued assets will be for when you retire.

Withdrawing Pillar 3a assets during marriage

Spouses can tap into third pillar pension capital separately for residential property. A requirement for withdrawing Pillar 3a assets is that the property must belong to the ownership in common of the spouses or they must be joint owners of the owner-occupied home. The spouses can split their withdrawals into different years and thus receive tax benefits as well, depending on the canton.

With pledging, Pillar 3a capital is not paid out and is instead pledged to the bank for a mortgage. This pledging allows for additional debt capital. The bigger mortgage means more debit interest is incurred, which the debtor can deduct from taxes.

With pledging, the Pillar 3a funds are not paid out directly and instead remain in the account or the safekeeping account. This means more capital is available in old age. The pledged retirement savings improve affordability for the borrower and are used as collateral for the lending bank. It is not touched unless the pledge is realized, in which case the bank can seize the funds from the pension provision. The realization of the pledge only takes effect if you are no longer able to make the interest payments on the mortgage.