An early withdrawal from the pension fund is a common way of obtaining the necessary equity capital for the purchase of residential property.
However, various legal rules must be considered, which we would like to point out in this blog entry.
General information on pension funds:
The pension system in Switzerland is based on three pillars, whereby the pension fund, also called occupational pension, belongs to the second pillar.
It is compulsory in addition to the first pillar (AHV) and aims to ensure basic provision in old age. In order to ensure basic provision, monthly contributions must be paid, half of which are paid by you and the other half by your employer. Self-employed persons have the option of making voluntary BVG contributions and thus turning to a pension scheme of their choice. In addition, the saved capital is exempt from income and wealth tax in all pension pillars.
When is an early withdrawal from the pension fund possible?
In principle, occupational pension funds can be withdrawn upon retirement, but at the earliest at the age of 58. If the employment relationship is continued beyond the retirement age, then the withdrawal can be postponed until the age of 70.
In some cases, however, second pillar funds can be withdrawn early, which are:
- Financing owner-occupied property – this includes purchase/construction, renovations and amortisation of the mortgage.
- Starting a self-employed occupation
- Leaving Switzerland permanently
- Early retirement
- Event of death
What should be considered when making an early withdrawal?
When making an early withdrawal from the pension fund due to the purchase of owner-occupied property, you must consider that at least 10% of the market value comes from other sources than the 2nd pillar. The advance withdrawal from the pension fund is also granted if you actually have sufficient liquid assets available for the equity portion. Furthermore, it must be mentioned that partial withdrawals are possible at most every five years and that the minimum amount per withdrawal is CHF 20,000.00. On top of that, the conditions for early withdrawals from the age of 50 are more strictly regulated depending on the pension fund institution.
Finally, it should be mentioned that the early withdrawal of pension fund assets leaves a gap in retirement benefits and thus has a negative impact on the pension. In addition, the amount paid out is subject to capital gains tax. It is very important to weigh up the advantages and disadvantages of an early withdrawal, as there is also the option of pledging the pension assets rather than withdrawing them directly. In both cases, you should deal with this topic in advance and seek discussion with the appropriate contact person.
Please feel free to contact us, we will be happy to explain the various options to you.