Does anyone know of it’s generally possible to indirectly amortise into your pillar 2 fund? I do have a gap for pillar 2 buyback so I wonder if it would be allowed.
I only ask because say I buy a property, I would want to max out my pillar 3a for that year so I could meet the deposit requirement via pillar 3a, but if I want to indirectly amortise I wouldn’t have space to contribute to the pillar 3a anymore.
Indirect amortization via your pension fund is technically possible, because pledging pension fund benefits as collateral for the purpose of financing a home is allowed. Indirect amortization is essentially the regular pledging of assets as collateral against a loan at regular intervals.
In practice though, you won’t likely find a pension fund that will provide this service. You can always pledge benefits as collateral. But a bank makes money off indirect amortization by requiring you to use their both its mortgages and its accounts or investment solutions for the assets pledged as collateral. Pension funds don’t have those incentives.
Because of that, indirect amortization is generally only offered within the pillar 3a.
The income tax deduction would be identical. The tax-exemption for dividends and interest would also be identical, because your assets would remain in the pillar 3a. So from a tax perspective you lose nothing by pledging your pillar 3a assets via indirect amortization, compared to using the pillar 3a to save for retirement.
The only possibly difference is the opportunity cost of having to hold your pillar 3a at the same bank that you get the mortgage from, assuming that bank has less favorable pillar 3a products than other banks.
What do you mean with that?
You can always max-out your 3a, with or without an indirect amortization arrangement.
As Daniel writes, I doubt banks will accept pillar 2 buy-ins for the required amortization, instead.
But you can still buy-in to pillar 2 if you have the funds, and maybe use it for some additional amortization in the future.
As far as I’m concerned indirect amortization is only possible with a 3A or a life insurance (aka 3B), I’ve never seen an application with a 2nd pillar based indirect amortization but I only work on the IT side. One argument is that the amortization amount is contractual while the 2nd pillar contributions depend on your employment. What happens if you become unemployed, do you stop paying back ?
You could withdraw from Pillar 2 to use as a deposit and then do regular payments back to repay it.
This way you can achieve something similar so long as your mortgage lender accepts using the pension fund for deposit.
You’re not limited to 10% deposit from the 2nd pillar, the 10% requirement is the minimum core equity (cash, 3A, etc.) to provide but on top of that you can add as much 2nd pillar withdrawal as you want.
Ah, you are right. Brain mis-function there. I corrected.
Thanks for the comments actually the situation I’m thinking was that my pillar 2 is much larger than my pillar 3, and for the cash portion of the deposit I’d prefer to pledge/withdraw the highest possible value of pillar 3 for the year of purchase.
So in January I would contribute the max 7k so the pillar 3 has a higher value where I could use more of my pillar 2 to meet a bigger deposit requirement, rather than using cash to meet that requirement. But if I want indirect amortisation I could no longer contribute to the pillar 3 in that year. Or perhaps direct amortisation for the first year and then indirect, or if possible partly amortise with the pillar 2 and continue with indirect the year after.
I just want to see what’s possible really.
Wouldn’t the lock-in period of 3 years after new contributions be an issue for indirect amortization in pillar 2? Also, if you already use pillar 2 for the initial payment, you won’t get any tax deductions for future buy-ins until you’ve repaid the withdrawn amount (you only get a refund of the withdrawal taxes).
With regards to pillar 3a indirect amortization, I’d suggest reading https://finpension.ch/en/knowledge/indirect-amortization/ as direct amortization might actually be better as long as you can afford to keep paying into your regular pillar 3a in addition to your mortgage payments with direct amortization.
Ok, so you want to pay-in 3a and withdraw it as equity (also to increase the amount you can withdraw from pillar 2 with that 10% rule), then fill it again for indirect amortization in the next years?
I’d pay-in 3a now as planned, then ask the banks you are talking to how they handle it, given that the current year is already maxed. Could imagine they agree to re-start 3a the next year, or to bring the first year with cash.
For that scenario, I’d also double check if paying in and withdrawing 3a the same year is ok with your local tax office, although the rules seem more relaxed compared to pillar 2 withdrawal.