Home ownership promotion in Switzerland: WEF withdrawal

Owning your own home and never paying rent again is the dream of many Swiss people. But it is one that can often fail to become reality due to a lack of equity. This is because by law, buyers of self-occupied property require equity of 20%.

Thanks to the program for promoting home ownership (WEF), retirement savings can be used as equity when purchasing a property you will live in yourself. This makes it much easier to find the required 20% equity and puts the dream of owning your own home within reach.

Switzerland is a country of renters rather than homeowners. The home ownership rate is 36%, which is low by international standards. Among the cantons, the rate in the last structural survey in 2020 was highest in Appenzell Innerrhoden and Valais at over 50%, and lowest in Geneva and Basel-Stadt at less than 20%.

The promotion of home ownership by private individuals is one of the goals of the state and is even included in the Federal Constitution with Article 108 on the promotion of home ownership.

In Switzerland, home ownership is mainly promoted by the tax-advantaged option of using savings capital from occupational pensions (pillar 2) or from restricted private pension savings (pillar 3a) to buy a house or apartment used by the owner.

These funds can help you find the required equity of 20% of the purchase price. 10% of the purchase price may be withdrawn from pillar 3a, however not from your occupational pension fund (pillar 2). If resources allow, this means that both sources can be combined to obtain the necessary equity. With both pillars, you can choose whether you want to withdraw your available retirement capital to finance real estate or to pledge it to the mortgage lender.

In addition, you can use the advance withdrawals to repay your mortgage loan (partial amortization) or to renovate or modernize the apartment.

You can have the vested benefits capital available at the pension fund paid out (early withdrawal) or pledged in favor of a larger mortgage. You can find out how much is available by consulting the pension fund’s pension certificate.

Up to the age of 50, you can draw on all of your pillar 2 savings: all of your vested benefits are available to you to purchase a home of your own. After your 50th birthday, you can withdraw either the vested benefits you were entitled to at age 50 or half of the vested benefits at the time of receipt, whichever is higher.

The minimum amount you can withdraw early is CHF 20,000. There is also a minimum amount for voluntary repayments to the pension fund. This must be at least CHF 10,000 and with most pension funds is possible up to three years before retirement.

With pillar 3a, all employees are free to take out a pension contract with an insurance company or pension foundation. As with pillar 2, the capital saved over a period of years can be used to purchase a home of your own by withdrawing it early or pledging it as collateral. Unlike with pillar 2, there is no minimum tranche for withdrawals from pillar 3a. Many pension funds do not allow partial withdrawals and only pay out retirement savings in full.

You can apply for early withdrawals of pension assets in pillars 2 and 3a every five years. However, this is only possible up to three or five years before you retire, i.e., before you receive retirement benefits from your pension fund.

In the case of pillars 2 and 3a, your deposits are tax-deductible but your withdrawals are taxed. Advance withdrawals are taxed as capital payments separately from other income at a more favorable pension rate in all cantons. On average, tax of around 10% will be paid on the early withdrawal, depending on the canton, municipality and the amount. The tax may not be paid using the payout amount, which is reserved for residential property.

Also be aware of wealth tax, which can increase because you withdraw tax-advantaged retirement savings to purchase residential property, which is a taxable asset. This fact is often overlooked.

You are not liable to pay tax on pledged amounts, as long as there is no liquidation of the pledge. Regarding tax, note also that you are not allowed to make tax-advantaged buy-ins into the pension fund until you have repaid the advance withdrawals in full into pillar 2, i.e., into your pension fund. Following every partial repayment, you can reclaim the tax paid on every payout on a pro rata basis within a period of three years.

What happens to the early withdrawals you have made if you decide to sell your house or condominium? If you sell a home financed via the WEF program, you’ll no longer be eligible for the program. The pension fund has had a restriction on sale entered in the land register, which ensures the return of the funds in the event of a sale. Monies you received from your pillar 2 account must be paid back in after the sale. However, you have three years in which to reclaim the capital withdrawal tax you paid at the time.

The situation is different with private retirement savings in pillar 3a. You do not need to pay back these advance withdrawals when you sell your home.

There are exceptions by which you do not need to repay advance withdrawals from pillar 2 despite the sale, for example, if you purchase a new WEF-promoted property within two years. Similarly, the pension fund does not require repayment if you transfer your condominium to a beneficiary under pension law, for example, to your partner (without selling the apartment).

According to a ruling by the Federal Supreme Court, the obligation to repay can be waived if you rent out the property after you have lived there yourself for a long time and did not want to make a “profitable investment” with the advance withdrawal money. However, you will have to repay the money if you grant other persons rights to residential property that are economically equivalent to a sale, such as a usufruct.

Before you earmark your retirement savings in pillar 2 or pillar 3a accounts for the purchase of residential property, you should first talk to your bank and pension fund. It is best to have these discussions at an early stage, because pension funds can postpone early withdrawals for up to six months or, under certain circumstances, even refuse them altogether. If you want to use your pension assets to purchase real estate now rather than to fund your retirement later, you should also consider how you can close any potential pension gaps.