Pillar 3a: provide for the future and save on taxes

In addition to the flexible pension provision under pillar 3b, which encompasses flexible and personal savings, the fixed pension plan under pillar 3a is also a vital part of personal retirement planning, and is supported by the state with tax benefits. For instance, annual payments into a 3a account or insurance solution can be deducted from taxable income within the statutory limits. Interest and investment earnings are exempt from income and withholding tax. Similarly, wealth tax is not levied on retirement assets.

As a rule, the statutory withdrawal of 3a credit is possible no sooner than five years before statutory retirement age. There are, however, legally defined grounds that allow 3a retirement funds to be withdrawn sooner, for instance if a person has permanently left Switzerland, has taken up self-employment, or for the purposes of financing owner-occupied property. Outpayments are taxed separately from other income at a reduced rate. Find out from the tax authority in your canton of residence about the tax rules governing fixed pension plan outpayments.

Tip

Use our online calculator to calculate the taxes that will apply when you withdraw capital from your pillar 3a to finance your home ownership.

Pillar 3a may be used for home ownership

One of the major exceptions for withdrawing 3a funds early is if it is to finance owner-occupied property. The money can be used

• when buying
• for renovating and refurbishing
• for the purposes of amortization of an existing mortgage

More equity thanks to anticipated withdrawal

The advantage of an anticipated withdrawal is obvious: it means more liquid funds are available to achieve the initially required 20 percent equity or to increase the proportion of your own funds and thereby reduce the mortgage and corresponding interest burden.

When deciding whether and how much of your 3a pension retirement assets you want to flow into your home, you need to weigh up the following two calculations:

• The more equity you bring in, the less external funds you need and the less mortgage interest you have to pay.
• The less you pay in mortgage interest, the less money you can deduct from your taxable income and the more taxes you pay.

Anticipated withdrawal is regulated by law

The following provisions apply to anticipated withdrawal:

• Anticipated withdrawals are possible only every five years (or more frequently in the case of multiple foundations or accounts. Contact your retirement savings foundation for more information on this).
• Partial withdrawals are possible only up to five years before the normal retirement age (65 years). After that, it is only possible to withdraw the assets all at once.
• Withdrawn assets must be taxed (capital gains tax).
• Repayments are not possible – this is allowed only for the 2nd pillar (pension fund). However, further inpayments can be made (taking into account the maximum amounts), which in turn are deductible.

Pledging: the alternative to anticipated withdrawal

Instead of withdrawing retirement assets to pay for your home, you can also pledge it.

In this case, the credit remains in your 3a retirement planning solution, and you continue to make contributions. This allows your credit to continue increasing on a year-by-year basis, thanks to inpayments and interest or earnings from fund investments. However, the mortgage lender has the right to access the funds if you are unable to pay the interest and amortization.

The pledged credit is often also accepted as security for the second mortgage. A second mortgage becomes necessary when your need for external funds exceeds approximately 67 percent of the market value of your property. The second mortgage must usually be paid off within 15 years or upon retirement at the latest. When pledging your pillar 3a, however, it may be that you have to amortize less or not at all. In this case, if the property values remain the same, the lender will want to access the credit in the future even after the interest and amortization have been paid.

The pledge serves as additional security for the mortgage lender. This means that you will generally receive better terms on your mortgage.

Anticipated withdrawal vs pledging – an overview

Using your 3rd pillar for home ownership – yes or no?

In case you are unsure if or how your 3a retirement savings assets should be used to finance a home, the financing experts at PostFinance will be happy to help you. Book your consultation now at a branch of your choice. We look forward to hearing from you.