#59 Pillar 3a for buying your own home: early withdrawal or pledging?

When purchasing a home, at least one-fifth of the purchase price must be contributed as equity; a maximum of 80 percent can be financed with a mortgage. Banks require that at least half of the 20 percent come from so-called hard equity. This includes, for example, account balances or funds withdrawn in advance from pillar 3a.

Funds from the pension fund (PF) can be used for the remaining own funds. A lesser-known but certainly relevant option is to leave the pillar 3a assets invested and instead pledge them as collateral.

Pledging pillar 3a: how it works and advantages

When you pledge your assets, your pillar 3a assets remain invested in securities. This means you continue to benefit from the potential returns offered by the capital markets and the compound interest effect. As no payout is made, no capital gains tax is payable at the time of pledging. However, it is important to note that this is only a deferral – taxation will occur at a later date when the payout is made.

Possible disadvantages of pledging

As attractive as pledging may seem at first glance, it also has disadvantages. Since less of your own funds are actually contributed, the mortgage is higher than with an early withdrawal. More borrowed capital in turn leads to higher mortgage interest rates. Accordingly, you should ensure that you can meet your ongoing interest and amortization obligations even if interest rates rise.

On the other hand, there are tax advantages: a higher mortgage reduces your taxable assets, and you can deduct the higher debt interest from your taxable income. At least as long as the imputed rental value still exists.

Another aspect concerns the lending against the pledged assets. Not all banks calculate a stock portfolio at its full market value. For example, if you have 200'000 Swiss francs in your pillar 3a deposit, the bank may only accept an imputed value of around 100'000 Swiss francs as collateral. However, this cautious valuation also serves to protect you, as it reduces the risk of a margin call in the event of sharp market fluctuations.

It is also important to note that even if pledging may subjectively feel less risky than an early withdrawal, the risk remains. If you are no longer able to meet your financial obligations, the bank is entitled to liquidate the pledged pillar 3a portfolio as well.

Early withdrawal or pledging – an individual decision

The choice between early withdrawal and pledging of pillar 3a ultimately depends on your personal financial situation, your risk tolerance, and tax considerations. There is no blanket recommendation.

At True Wealth, we enable our clients to make early withdrawals or pledge pillar 3a funds within the scope of the legal possibilities. The decision is always yours.

Is the topic of liquidation versus pledging currently relevant for you? We would be happy to offer you a non-binding, 30-minute consultation with one of our financial planners. If you are interested, please contact us by email.