Early withdrawal from a pension fund and pillar 3a: What you should know

With an early withdrawal, you can use the pension plan savings you have accumulated – from a pension fund or pillar 3a – before normal retirement age. However, early withdrawal is strictly regulated by law: It is only permitted under certain conditions and is tied to a clearly defined purpose.

An early withdrawal is not a chance to freely dispose of your pension plan savings – on the contrary: It is clearly regulated by law and only permitted under certain conditions. The aim is to protect pension fund assets and only release them for other purposes in precisely defined situations in life. 

Permissible reasons for early withdrawal from the pension fund:

• Residential property: Purchase, construction, renovation and value-enhancing investments in owner-occupied residential property (main residence) in Switzerland. The full vested benefits can be withdrawn for this purpose up to the age of 50. If you are older, the maximum amount you can withdraw is the amount to which you would have been entitled at the age of 50 – or half of the current balance.
• Self-employment: An early withdrawal from a pension fund is also possible if you become self-employed. However, the withdrawal must be made within one year of becoming self-employed.
• Emigration: If you emigrate permanently to a country outside the EU/EFTA, you can withdraw the entire pension savings. If emigration takes place within the EU/EFTA, only the non-mandatory portion can usually be withdrawn; the mandatory portion must remain in a vested benefits institution in Switzerland. 

Tip: You will find the maximum amount that can be withdrawn on your pension fund statement.

Permissible reasons for early withdrawal from pillar 3a:

• Retirement: You can withdraw your pension plan savings at the earliest five years before the normal OASI retirement age in order to organize your transition to retirement financially or to reduce existing obligations.
• Purchase of owner-occupied residential property or repayment of mortgages: An early withdrawal is possible if you want to buy, build or renovate your own home or repay a mortgage. Use for vacation or investment properties is not permitted.
• Buying into the 2^nd pillar: Pillar 3a assets can be used to buy into a 2^nd pillar pension plan.
  Emigration: If you leave Switzerland permanently, you can have your pillar 3a assets paid out – regardless of which country you move to.
• Self-employment: If you become self-employed and are no longer affiliated with a pension fund, you may withdraw the pension capital. The withdrawal must be made within one year of becoming self-employed.
• Disability: If you receive a full disability insurance pension and the disability insurance risk is not insured, you can withdraw your assets from pillar 3a early. 
  
   

Anyone planning an early withdrawal should be fully aware of the differences between pension funds and pillar 3a. Although both forms of retirement provision allow for early payout, different rules, restrictions and tax consequences apply to an extent.

The following overview shows you a comparison of the most important features – so that you can better assess which option suits your situation.

1. Get information and advice: Clarify your options, deadlines and tax consequences.
2. Submit an application: Submit the early withdrawal application to your pension fund or bank / insurance company (3a).
3. Submit documents: E.g. purchase contract, extract from the commercial register or confirmation of deregistration in the event of emigration.
4. Verification and payment: After approval, the payment is made – usually directly to the seller or your mortgage bank.
5. Notification to tax authorities: The early withdrawal must be declared for tax purposes.

Good to know: In the case of married persons, the written consent of the spouse is always required.

Instead of withdrawing your pension plan savings directly, you can also pledge them – in other words: You deposit your savings from your pension fund or pillar 3a as collateral for a mortgage without a payout being made. Your capital remains untouched and continues to be invested in retirement provision.

Advantages of pledging:

• No capital withdrawal tax, as no money is paid out
• Retirement pension and risk benefits remain fully intact
• Pension plan savings remain invested and can continue to generate income
• Better mortgage conditions possible, as the pledged credit balance provides security for the bank

When is a pledge particularly suitable?

• If you are still young and do not want to reduce your future retirement pension
• If you have sufficient income or equity to ensure that you can afford the mortgage without an early withdrawal
• If you want to take advantage of tax benefits through the deduction of mortgage interest (regulated differently from canton to canton)

Amounts withdrawn early from a pension fund or pillar 3a are taxed separately from other income at a reduced tax rate. The amount depends on the canton and the amount withdrawn.

The Federal Council is currently planning to adjust the taxation of capital withdrawals from the 2nd and 3rd pillars. In future, these are to be taxed at a higher rate than at present. The bill is to come before Parliament. It is still unclear when and to what extent the change will come into force – it is therefore worth checking planned payments for tax purposes in good time and acting early if necessary.

A one-off payment can lead to a noticeable tax burden. Planning ahead is therefore particularly worthwhile.

How to optimize your tax burden:

• Staggering of pillar 3a withdrawals: If you have several pillar 3a plans, you can withdraw from them in different tax years. In this way you avoid the progressiveness of tax resulting in high charges.
• Plan your withdrawal well: Choose a year with lower earnings from gainful employment for the early withdrawal – this will reduce the tax burden.
• Combination of pension fund and 3a withdrawal: If you withdraw both pension fund assets and pillar 3a assets in one year, they will be taxed together – this can result in a significant tax increase due to the progressiveness of tax. You should therefore plan separate payout years if possible.

Note: Currently, married couples in Switzerland are taxed jointly on lump-sum payments – this often leads to higher tax rates than for individuals. Early and coordinated planning is particularly important here.

An early withdrawal has a direct impact on your retirement provision – and can have long-term financial consequences. This is because the amount withdrawn reduces your savings balance, which has an impact on several areas:

• Retirement benefits
• Insurance coverage in the event of disability or death
• Your flexibility for later pension fund buy-ins (only possible again after repayment of the early withdrawal)

Tip: Check whether a voluntary repayment at a later date is an option for you – this way, you can close your pension gap again and benefit from tax advantages.