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View Poll Results: Early withdrawal of 2nd pillar for property amortisation
Withdraw 2nd pillar and use freed-up investable money to better invest over 30 years 10 71.43%
Keep 2nd pillar untouched. 4 28.57%
Voters: 14. You may not vote on this poll

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  #1  
Old 20.02.2017, 15:19
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2nd pillar to amortise property

Hi

As one of my mortgages expires this year and seeing my pension fund delivering very low returns, I am considering to withdraw from the pension fund to amortise a part of our property. This way I can "free up" investable money which one can freely invest on the stock market so that it brings real returns, money that I would otherwise need to use for yearly amortisations. FYI: I still have about 30 year to retirement,

I am aware of the usual drawbacks of early withdrawal such as:
  • taxation (which would be due anyway upon retirement)
  • reduced pension (would be compensated by better investment than pension fund)

The major question for me is, what happens if one day I want to sell or rent the apartment? Is it as simple as having to pay back the PF, or are there other pitfalls to it?

+ Can you think of other reasons for/ against early withdrawal?

Bonus question: Do you know if the above-mandatory (überobligatorisch) part of the pension fund also needs to be paid back if I decide to sell/rent out teh apartment? Or tdoes this only apply to the mandatory part of the pension fund?

Last edited by EPMike; 20.02.2017 at 15:39.
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  #2  
Old 20.02.2017, 15:29
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Re: 2nd pillar to amortise property

"Better investment" in property is not sure...
It seems a "all in" move from the casino... If property lose value significantly... game over (?).

Also, beside not spending more money on rent, is there any return in having a property? No dividend, only costs, devaluation due to age, etc...

I'm not saying retirement money is better though...
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  #3  
Old 20.02.2017, 15:40
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Re: 2nd pillar to amortise property

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"Better investment" in property is not sure...
...

Also, beside not spending more money on rent, is there any return in having a property? No dividend, only costs, devaluation due to age, etc...
Edited post to make clear that the "freed-up" money would be used to invest on the stock market. The actual move is therefore not from pension fund into the property, but from pension fund onto the stock market. The decision to "invest" in the property has been taken years ago. So that is not a question now. The property is now only a "vehicle" to get out pension fund money early so that the money that I would spend each year to amortise (mandatory down to 65%) can be used to invest in long term stocks.

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"It seems a "all in" move from the casino... If property lose value significantly... game over (?).
If it is amortised down and I live in it, then I could not care less of the current market value.
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  #4  
Old 20.02.2017, 15:45
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Re: 2nd pillar to amortise property

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Edited post to make clear that the "freed-up" money would be used to invest on the stock market. The actual move is therefore not from pension fund into the property, but from pension fund onto the stock market.
Are you allowed to do that?
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  #5  
Old 20.02.2017, 15:48
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Re: 2nd pillar to amortise property

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Are you allowed to do that?
Well not literally. What I do is take out pension fund and use it to amortise the apartment. I can certainly do that.

What I meant was: Since I would anyway amortise, all I do is I use "other" funds to amortise instead and use what is "freed" up to invest. Money is money after all.
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  #6  
Old 20.02.2017, 15:54
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Re: 2nd pillar to amortise property

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Bonus question: Do you know if the above-mandatory (überobligatorisch) part of the pension fund also needs to be paid back if I decide to sell/rent out teh apartment? Or tdoes this only apply to the mandatory part of the pension fund?
It has be be repaid as you can't take it out, just because you want to. This is pension paid on salary that falls out of 24,674-84,600 legally required to be insured range.
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Old 20.02.2017, 15:58
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Re: 2nd pillar to amortise property

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Bonus question: Do you know if the above-mandatory (überobligatorisch) part of the pension fund also needs to be paid back if I decide to sell/rent out teh apartment? Or tdoes this only apply to the mandatory part of the pension fund?
Yes, it's still pension with all the rules around that, you have to pay it back.

But more common would be to transfer it to your new main residence, unless you have no main residence that you own.
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Old 20.02.2017, 16:15
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Re: 2nd pillar to amortise property

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"Better investment" in property is not sure...
It seems a "all in" move from the casino... If property lose value significantly... game over (?).

Also, beside not spending more money on rent, is there any return in having a property? No dividend, only costs, devaluation due to age, etc...
Rent savings are your dividend. When renting, about 30% is your landlord's profit margin, which is all yours if you own. And property (or rather land) normally increases in value, which is your other reward for ownership. Prices are still rising, albeit slowing down.

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Well not literally. What I do is take out pension fund and use it to amortise the apartment. I can certainly do that.

What I meant was: Since I would anyway amortise, all I do is I use "other" funds to amortise instead and use what is "freed" up to invest. Money is money after all.
If you take out pension fund money just to amortize, you only win the difference between your mortgage rate and whatever interest your pension fund is paying.

Much more exciting and practical would be to take out pension fund money AND increase mortgage at the same time. Unfortunately banks/pension funds don't really allow to do that. Only if you'd use the money to renovate or something, but there's no profit in that.

You can go around that by buying a new property, this time using as much pension fund money as possible, and selling the old one for cash. Cash leftovers will be your pension fund money, freed up for investment. Don't forget to request to postpone capital gains taxes, another good source of free money.
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  #9  
Old 20.02.2017, 17:16
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Re: 2nd pillar to amortise property

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If you take out pension fund money just to amortize, you only win the difference between your mortgage rate and whatever interest your pension fund is paying.
Well, with current mortgage rates that is more or less the same so no win there. I see the potential in investing the same funds myself (hopefully) better over the next 30 years than the pension fund does.

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You can go around that by buying a new property, this time using as much pension fund money as possible, and selling the old one for cash. Cash leftovers will be your pension fund money, freed up for investment. Don't forget to request to postpone capital gains taxes, another good source of free money.
Isn't what I proposed pretty much the same? That is putting as much pension fund money into the property so as to free up cash that would otherwise be locked for 30 years? The only difference is that I would do it after purchase (as amortisation - which I have to do anyway) and not upon purchase - wish I did it then, but can't change the past.

Let me give a pratical example:

In the next 10 years I MUST amortise 100k= 10k/year. Say I have 100k in the pension fund.

If I leave it there, that would grow in 30 years to 242k (with 3% interest rate of the Pension Fund).

Now if I take that 100k out of the pension fund and amortise the apartment now, I can use the 10k/year I would otherwise need to amortise and instead invest it. Over the next 10 years investing 10K/year and with a decent return of 7%p.a. I would have 138K + 10k in interest payments saved.

Then keeping that 148k invested for a further 20 years, I would end up with 572K. That is more than double.

On the other hand, if in 10 years I decide to leave CH and sell/rent and I have to pay back into the pension, then the difference is only 138k vs 134k. Even though I might be able to use the pension fund for my next property abroad.

Last edited by EPMike; 20.02.2017 at 17:27.
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  #10  
Old 20.02.2017, 17:29
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Re: 2nd pillar to amortise property

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Well, with current mortgage rates that is more or less the same so no win there.
Well, my pension fund pays me only 0.125% on the non-mandatory part starting this year. I can only dream of borrowing at such a rate.

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Isn't what I proposed pretty much the same? That is putting as much pension fund money into the property so as to free up cash that would otherwise be locked for 30 years? The only difference is that I would do it after purchase (as amortisation - which I have to do anyway) and not upon purchase - wish I did it then, but can't change the past.
You should do it at the time of purchase, because only then you can use pension fund money to substitute half of your downpayment.

if you use it to amortize later, you won't be able to easily to raise the mortgage anymore. Banks strongly hesitate to increase a mortgage for any purpose other than renovations, and the tax office isn't exactly dumb too and digs what you're trying to accomplish here

Plus, buying and selling allows you to cash out capital gains accrued in your old property.
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  #11  
Old 20.02.2017, 17:43
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Re: 2nd pillar to amortise property

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You should do it at the time of purchase, because only then you can use pension fund money to substitute half of your downpayment.
Are you sure? I mean after 15 years (or by retirement) you must put down 35% of the property value. I started with 20% + 15% over the next 15 years. That was 5 years ago.

The two options (IMHO both legal and not fishy): what you propose vs why I am saying:

1) use PF money on day 1 to put down 10% and pay the other 25% over the next 15 years

2) use no PF money on purchase, put down 20% cash. Amortise 5% in the next 5 years. After 5 years use PF to amortise the remaining 10%.

At the end in both cases you use 10% PF money to pay for the property. Option 2 is for people who have been falsely persuaded not to use PF money for the property.


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if you use it to amortize later, you won't be able to easily to raise the mortgage anymore. Banks strongly hesitate to increase a mortgage for any purpose other than renovations, and the tax office isn't exactly dumb too and digs what you're trying to accomplish here
I am NOT trying to increase the mortgage, to the contrary: I would reduce it.


But anyhow: My original question still remains: am I missing something?
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  #12  
Old 20.02.2017, 17:51
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Re: 2nd pillar to amortise property

The 1st case is strictly better. Only 10% of your real cash is tied up in the property, the rest is cheap mortgage and PF money. You can pay more than 10% with PF I think, you just need to pay at least 10% with own cash.

In the 2nd case, 20% of your very expensive own capital is tied up from the start in the property. Capital that would generate your far more profit in the stock market. You cannot reduce the rate back to 10% later - that means increasing the mortgage which the banks won't let you do

Last edited by ivank; 20.02.2017 at 18:02.
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Old 20.02.2017, 18:02
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Re: 2nd pillar to amortise property

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The 1st case is strictly better. Only 10% of your real cash is tied up in the property, the rest is cheap mortgage and PF money. You can pay more than 10% with PF I think, you just need to pay at least 10% with own cash.

In the 2nd case, 20% of your very expensive own capital is tied up from the start in the property. Capital that would generate your far more profit in the stock market. You cannot reduce the rate back to 10% later
I know, but too late now. I am now trying to make the best of the situation. As said, I was repeatedly told better not to touch PF money - and actually as the poll stands, also EF members are 50%-50% so still undecided. However, I am yet to be given 1 valid argument NOT to withdraw PF.
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Old 20.02.2017, 18:04
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Re: 2nd pillar to amortise property

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But anyhow: My original question still remains: am I missing something?
You need to have enough capital aside in case the property lose suddenly value and banks wants to reclaim the difference.

Say you buy at 800K. Suddenly it worth only 600K. Bank could ask you to bring 200K cash.

Not sure the details but it's true, so you might* need to have "spare" cash.
*or take risks
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Old 20.02.2017, 18:10
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Re: 2nd pillar to amortise property

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I know, but too late now. I am now trying to make the best of the situation
My proposal is buy something new and sell old property. You achieve two goals at the same time: you new property is cheaply financed with only 10% of your own cash, and you get to cash out capital gains from your old property - you can invest them right away
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Old 20.02.2017, 18:17
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Re: 2nd pillar to amortise property

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You need to have enough capital aside in case the property lose suddenly value and banks wants to reclaim the difference.

Say you buy at 800K. Suddenly it worth only 600K. Bank could ask you to bring 200K cash.

Not sure the details but it's true, so you might* need to have "spare" cash.
*or take risks
That is a risk with property, but not affected by this topic.

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My proposal is buy something new and sell old property. You achieve two goals at the same time: you new property is cheaply financed with only 10% of your own cash, and you get to cash out capital gains from your old property - you can invest them right away
From purely financial perspective: YES. However, for purely financial purposes I would NOT buy property.
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Old 20.02.2017, 19:33
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Re: 2nd pillar to amortise property

One disadvantage of withdrawing is that you can't make voluntary tax deductible contributions to the pension fund anymore after it. They will be treated as repayments at first and not tax deductible. So, if you decide to make a withdrawal, make it count - take everything you can, and make your last top-up 3 years in advance.
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Old 20.02.2017, 20:17
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Re: 2nd pillar to amortise property

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On the other hand, if in 10 years I decide to leave CH and sell/rent and I have to pay back into the pension, then the difference is only 138k vs 134k. Even though I might be able to use the pension fund for my next property abroad.
Or possibly take the pension fund 100% as cash as I did when I left for an EU country. No need to complicate matters by trying to buy a main residence abroad.
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Old 20.02.2017, 22:45
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Re: 2nd pillar to amortise property

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Or possibly take the pension fund 100% as cash as I did when I left for an EU country. No need to complicate matters by trying to buy a main residence abroad.
EU? How did you manage to do that?
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Old 21.02.2017, 08:57
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Re: 2nd pillar to amortise property

[QUOTE=EPMike;2743747]Are you sure? I mean after 15 years (or by retirement) you must put down 35% of the property value. I started with 20% + 15% over the next 15 years. That was 5 years ago.

Sorry, you have lost me with these calculations, but apart from the maths I think there is the factor of a "safe" pension fund , and swiss funds must be about as safe as they get, being a good place to have some money to support you in old age. You are assuming you are a wise investor, but even clued up investors get burned. -especially when dementia sets in
My question - Is the 35% calculated on the buying price (as I assume) rather than on the estimated market value?
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