2nd Pillar withdrawl for mortgage reduction, when it's worthy?

Hi Everybody,
I’m thinking the following and it looks too easy to me, so I would like your advise on this:
As many employed people I have a quite bad 2nd Pillar with a 1% yearly interests, If the mortgage interest is above that 1% in a certain period (I should consider the tax advantage in having the mortgage too), would it be always recommended to use 2nd pillar to reduce it.

Is this true? It’s always the case?

I’m interested for example on having the 2nd Pillar “ready” to reduce to 65% after 15 years the mortgage as I’m forced to by law (and free the pledged 3a that can be invested more freely), and after that to have it ready to lower the mortgage if having SARON going up.

I checked all the posts and I didn’t found anything specific, so probably I am missing a piece of the puzzle…

the mortgage is not taxed for wealth, so that might be worth, say, 0.6% depending on your canton. the mortgage interest is deductible, so 1% interest might be costing only 0.7% after tax.

So your pillar 2 might be worth 1.6% vs 0.7% so you’d need interest rates to go up a bit more before it is neutral. Then you also have the hassle and maybe costs to take out the money.

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Any 2nd pillar money withdrawn, do not reduce your income tax when you do extra payments into your 2nd later until you re-pay the withdrawn ammount. Say 100k removed for pay back 2nd mortage, you hit 50+yo, want to pay 20k into your 2nd yearly and expect 30-40% savings on income tax for that extra pernsion fund addition. Well, the 100k you withdrew years ago have 0% effect on income tax. All a math juggle act depending on your factors which is better.

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Be careful about 2nd pillar withdrawal. Check the impact with your pension fund the impact on the disability and death coverage insurance. Especially if you have children.

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As I was suspecting there is something more to consider :sweat_smile:

Maybe it’s silly, but I’m constantly calculating what would be the minimum needed interests % to have a mortgage reduction payed back by the reduction of interests at the age of 70, below that threshold I think it would not even make sense to think about a reduction (as for today it would be 3.1%).

That’s is interesting too, I feel I don’t earn enough to make it worth, but I’ll have to calculate better right before take the decision because in some years everything could change.

Good point, I have no idea actually how doeas it work, I guess it really depends on individual situation, can I espect the insurance will not drop to 0 but to a minimum value right?

It depends on the pension fund. I suspect for most it doesn’t make a difference as they seem mainly to be calculated by reference to your insured salary rather than how much you have in the fund.

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First of all, your 2nd pillar‘s minimum return is 1% or it is a fixed return of 1% ? Fixed of 1% seems quite lousy use of pension fund money….

Anyhow. If it is 1% then indeed worth to use the money to have lower mortgage unless we are in free money environment again. However you need to account for total cost to withdraw. I don’t think it’s as simple as making IBAN transfer. There are some additional costs to make that withdrawl

Link below have an example of costs to consider
https://thepoorswiss.com/cost-owning-house/

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It has been 1% in the past 6 years, it will be 1.25% for 2024, it really sucks but I guess is what most people is getting if employed in a big and sleepy company :frowning_face:
And that’s why I’m thinking that the same money can be valued more if used to be saved by big interests (if ever they’ll arrive).
Yes indeed taxes are applied and they must be taken in account, thank you for the link is good as a reference, in case I’ll reach that point I think I would like to have the exact amount calculated by the authority before take a decision.

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How do you actually check this? Honestly the second pillar is by far the most confusing part about investing in Switzerland.
From what I first thought its basically just a mandatory bond investment, and disability etc. is covered by AHV.
I tried to read through the extremely long document about my companies pillar 2 and I am just more confused. It sounded like they were mixing pillar 2 and AHV together, but after your comment I am not sure anymore if I understand it correctly at all.

I think every pillar has its own benefits. AHV covers partially some benefits but the bigger part would come from 2nd pillar because that’s where most money is.

Check your pension fund regulations. It’s written there normally how the benefits are calculated. There is typically a section about contributions and also a section about benefits in times of death and disability. Each fund has its own rules.

In the end it’s all about money. If you reduce your contributions or value of your fund, then the benefits should also be impacted.

You have to ask your pension fund. What can be the impact on insurance part if you withdraw.

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