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Old 10.09.2021, 12:06
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Withdrawing pension using mortgage as a passthrough

I just checked how much tax we will have to pay to cash out our pension funds when we leave Switzerland (still over 10 years ago). Even in Schwyz I'm surprised how much it will be.

Staggering the withdrawal over several years would have a material impact on reducing the tax. Obviously that isn't possible under normal circumstances.

Does anyone know if it is possible to withdraw from your pension to pay down your mortgage (which can be done every 5 years) and then remortgage to free up the cash to invest on your own account (assuming you are under 65% LTV so the bank will lend)?

I know that you can't buy additional pension benefits until you have repaid your withdrawal, which stops tax arbitrage, but I'm not aware of any rules regarding remortgaging.
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Old 10.09.2021, 12:36
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Re: Withdrawing pension using mortgage as a passthrough

I don't see why not. When you sell, you need to repay the pension fund. Not sure if re-mortgaging can be caught within this. I guess you could find the law on this and take a look to see if they try to catch this.
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Old 10.09.2021, 13:42
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Re: Withdrawing pension using mortgage as a passthrough

I think you are missing the sneaky part Phil.

You quit your job and move your remaining pension assets to a vested benefits account. So in theory, as you are no longer a member of the pension scheme you can’t repay. Not sure if you are allowed to put money into your vested benefits account other than a pension transfer? So could you even repay? However, if you leave the country and cash out the vested benefits account and are no longer resident when you sell the house, what would you repay?
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Old 10.09.2021, 14:50
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Re: Withdrawing pension using mortgage as a passthrough

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I think you are missing the sneaky part Phil.

You quit your job and move your remaining pension assets to a vested benefits account. So in theory, as you are no longer a member of the pension scheme you can’t repay. Not sure if you are allowed to put money into your vested benefits account other than a pension transfer? So could you even repay? However, if you leave the country and cash out the vested benefits account and are no longer resident when you sell the house, what would you repay?
This was precisely my plan for how to best use my pillar 2. I'd be interested to hear how you get on.
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Old 10.09.2021, 15:10
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Re: Withdrawing pension using mortgage as a passthrough

As far as I understand the use of 2nd pillar during property purchase is documented by a notary. When you sell the notary has the responsibility to check for this and I always believed they would make you repay the money to a vested benefit scheme even if you are overseas

What I don’t know what happens is if you sell when you are past retirement age and potentially also overseas

Would be great if someone knew and could enlighten us
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Old 10.09.2021, 15:23
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Re: Withdrawing pension using mortgage as a passthrough

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I think you are missing the sneaky part Phil.

You quit your job and move your remaining pension assets to a vested benefits account. So in theory, as you are no longer a member of the pension scheme you can’t repay. Not sure if you are allowed to put money into your vested benefits account other than a pension transfer? So could you even repay? However, if you leave the country and cash out the vested benefits account and are no longer resident when you sell the house, what would you repay?
I assumed you'd pay it into the VBA
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Old 10.09.2021, 15:28
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Re: Withdrawing pension using mortgage as a passthrough

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As far as I understand the use of 2nd pillar during property purchase is documented by a notary. When you sell the notary has the responsibility to check for this and I always believed they would make you repay the money to a vested benefit scheme even if you are overseas
disclaimer that i've never done this so don't really know, but i was told that it is recorded as a charge on the land registry (in a similar way as a mortgage) and so this would need to be discharged before you could transfer the property.

i would expect this is transferred from pension fund to the VBA.

let's assume we are in a world where this is not the case. you assume one version where this becomes a loophole where you get out of the obligation. i can see another one where you are now longer able to discharge the lien on the land registry and are no longer able to sell your house
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Old 10.09.2021, 15:45
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Re: Withdrawing pension using mortgage as a passthrough

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disclaimer that i've never done this so don't really know, but i was told that it is recorded as a charge on the land registry (in a similar way as a mortgage) and so this would need to be discharged before you could transfer the property.

i would expect this is transferred from pension fund to the VBA.

let's assume we are in a world where this is not the case. you assume one version where this becomes a loophole where you get out of the obligation. i can see another one where you are now longer able to discharge the lien on the land registry and are no longer able to sell your house
Interesting perspective. I think this is the kind of question that I'm going to have to pay a lawyer to answer. I hadn't considered that angle.
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Old 12.09.2021, 21:40
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Re: Withdrawing pension using mortgage as a passthrough

If you are going to the Uk you can take all of it out as cash. I do not believe tax in Schwyz is that high

Liberty pension will cash out for about 7% which is very pow
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Old 13.09.2021, 10:05
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Re: Withdrawing pension using mortgage as a passthrough

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If you are going to the Uk you can take all of it out as cash. I do not believe tax in Schwyz is that high

Liberty pension will cash out for about 7% which is very pow
You may not believe it, but I believe 7% of a large number is significant to look into the options to mitigate it.
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Old 13.09.2021, 10:21
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Re: Withdrawing pension using mortgage as a passthrough

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You may not believe it, but I believe 7% of a large number is significant to look into the options to mitigate it.
Indeed, France a high taxation country only charge 7.5% on lump sums taken instead of an annual pension.
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Old 13.09.2021, 11:06
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Re: Withdrawing pension using mortgage as a passthrough

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You may not believe it, but I believe 7% of a large number is significant to look into the options to mitigate it.
If your plan is to withdraw 2 or 3 pillar to buy your primary residence you will have to pay withdrawal tax at the rate of your canton of residence when you withdraw to buy the house.

This page may be helpful
https://finpension.ch/en/withdraw-pe...homeownership/

The only way I have heard it may be possible to avoid paying tax on withdrawal (disclaimer: 2nd hand knowledge I have never done this myself) is if you move to a country where a dual tax treaty exists and the treaty says the pension is taxable in the destination country, but then destination country decides to apply 0 or low tax. When Switzerland see a note from the authorities in the destination country acknowledging that the pension pay out has been declared, I heard they may refund the CH witholding tax.
Example: I heard that in the case of Portugal, there is a "non habitual resident" deal to attract wealthy residents, which used to mean pension payouts from overseas were exempt from tax. So even though you declared the payout the Portugal tax authorities would not apply any tax to it. The rule changed under pressure from the EU and Portugal is now taxing such pension payouts at 10% - which is still an incredible deal if you saved 30 or 40% tax when paying into the 2 or 3 pillar.

Perhaps FMF has input how it works in Malta

Last edited by jim1; 13.09.2021 at 11:26.
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Old 13.09.2021, 11:19
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Re: Withdrawing pension using mortgage as a passthrough

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If your plan is to withdraw 2 or 3 pillar to buy your primary residence you will have to pay withdrawal tax at the rate of your canton of residence when you withdraw to buy the house.
Yes and I've already done that once. The point is that it's a progressive tax rate, so if I withdraw a smaller amount twice in the next 10 years and then the balance on departure, I'll pay a smaller percentage of tax each time. If there is no requirement to pay it back into the pension fund, due to the scenario I have outlined, the tax saving would be considerable - it would reduce the total tax paid 3x, as well as then opening up the possibility to invest the funds at a better rate than the 1.5-2% that I get on my core pension account (the 1e part is well invested and gets an appropriate return).
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Old 13.09.2021, 11:34
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Re: Withdrawing pension using mortgage as a passthrough

I am pretty sure the charge in the land registry means that if you sell or remortgage the house you would have to repay the amount withdrawn back into a pension fund or if you are not employed into a vested benefit account. You can withdraw money from a vested benefit account to buy a house in the same way as you can from a pension fund, so it would seem unlikely to me that a different logic would apply.

If you want to check why not ask Finpension via the link I shared, they usually reply to mails. Or perhaps another vested benefit account provider
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Old 13.09.2021, 12:14
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Re: Withdrawing pension using mortgage as a passthrough

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Indeed, France a high taxation country only charge 7.5% on lump sums taken instead of an annual pension.
I recall reading that in France that there may be social charges applied to the lump sum in addition to the taxes - sadly I can't find the source
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Old 13.09.2021, 12:18
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Re: Withdrawing pension using mortgage as a passthrough

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I am pretty sure the charge in the land registry means that if you sell or remortgage the house you would have to repay the amount withdrawn back into a pension fund or if you are not employed into a vested benefit account. You can withdraw money from a vested benefit account to buy a house in the same way as you can from a pension fund, so it would seem unlikely to me that a different logic would apply.

If you want to check why not ask Finpension via the link I shared, they usually reply to mails. Or perhaps another vested benefit account provider
Don't disagree, but that isn't the situation I'm describing. The situation is where you have already withdrawn remaining funds from the vested benefits account and closed it, because you have left the country.

The danger is as Phil says that if you can't pay it back you can't remove the marker from the land registry and get left in some kind of limbo.
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Old 13.09.2021, 12:43
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Re: Withdrawing pension using mortgage as a passthrough

Logically I assume the notary would make you pay the 2P back to whichever vested benefit account you nominate. If you don't give them a vested benefit account within a certain timeframe I assume they would direct it to the "central vested benefit account" (in the same way employer pension schemes have to do if you don't provide them an alternative account)

However you know what they say about assumptions..
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Old 13.09.2021, 12:46
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Re: Withdrawing pension using mortgage as a passthrough

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The danger is as Phil says that if you can't pay it back you can't remove the marker from the land registry and get left in some kind of limbo.
i think i was clear, but just to be sure: that isn't the scenario i expect, but i just gave it as a warning example of not to assume too much and to clarify all aspects as you can otherwise risk ending up in an unexpected situation.
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Old 13.09.2021, 12:59
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Re: Withdrawing pension using mortgage as a passthrough

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Don't disagree, but that isn't the situation I'm describing. The situation is where you have already withdrawn remaining funds from the vested benefits account and closed it, because you have left the country.

The danger is as Phil says that if you can't pay it back you can't remove the marker from the land registry and get left in some kind of limbo.
Isn't that clear. If you have left to the UK you would in any case be entitled to withdraw in full - so couldn't be asked to pay it back.
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Old 13.09.2021, 13:27
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Re: Withdrawing pension using mortgage as a passthrough

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Isn't that clear. If you have left to the UK you would in any case be entitled to withdraw in full - so couldn't be asked to pay it back.
I would not jump to that conclusion in CH, the rule on repaying that was agreed to was very clear at the time. I suspect you need to pay it back, then withdraw if the current situation allows at whatever tax rate.
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