The pledge of your pillar 2 assets
Updated on November, 21st 2023.
What would you think of not withdrawing your pillar 2 within the framework of the homeownership promotion scheme (EPL) but to pledge it instead?
Little piece of advice, next time you see your banker, bring your pension certificate with you and ask whether he could evaluate this possibility.
Put simply, pledging or collateralisation of your pillar 2 works the same way as withdrawing it but without actually making a withdrawal.
Does this idea sound bizarre? Not really…
Instead of taking out the necessary assets that are kept warm in your pension fund, you will guarantee them that if you do not honor your loan engagements, they can seize your second pillar assets by means of forced withdrawal. It is a win-win situation, the bank can grant you a mortgage loan and, more importantly, you get to not use your pillar 2. Thereby, your covers and annual interest paid on your capital remain untouched.
Example: Decrease of BVG pensions
If this is not perfectly clear, here are some additional explanations. Depending on your pension fund, pensions are calculated as a percentage of the amount held in your 2nd pillar. The best example is retirement, for the majority of insured persons the BVG pension is equivalent to 6.8% of the BVG capital for the compulsory part (still in 2023). If you have CHF 300,000 in capital, you can expect to receive CHF 20,400 per year. If you opt for an EPL withdrawal and withdraw CHF 100,000 of this capital, your pension will fall from CHF 20,400 to CHF 13,600.
The tax on capital withdrawal
This difference is quite simple to understand, you are not actually going to withdraw any money from your 2nd pillar. If there is no withdrawal, there is no tax to pay. This is an advantage, of course, but only in the short term. The day you decide to leave Switzerland, retire or become self-employed, you will have to pay this tax.
What’s the catch?
Just like every solution, it comes with its disadvantages:
A pledge implies a larger debt
As you do not withdraw this money, you cannot use it to pay the seller. The insurance company or bank that will finance the property will therefore have to increase the amount of the debt by the amount pledged. The disadvantage is that your debt will be bigger (up to 90% of the price of the property).
Solvency is harder to achieve
In the calculation of financial institutions, the amount of debt plays a key role in the feasibility of your project. The debt will negatively impact two points in the calculation:
Theoretical mortgage interest
Financial institutions use a rate between 4% and 5% of the debt to calculate the mortgage charge. The higher the debt, the higher the interest payments and the higher your income must be.
Amortisation
The law requires a minimum repayment over 15 years or at retirement age so that your debt does not exceed 66% of the sale price. In the normal case, you borrow 80% and you will pay back 1% per year. In the case of a pledge, you will have to pay back 1.6% per year of the price of the property. This difference impacts not only your creditworthiness but the overall financial burden during the first 15 years of your real estate project.
Pledging? Withdrawing your pillar 2? Each situation has to be evaluated on a case-by-case basis. Here is a short summary of these two options.
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