Maximizing LPP Investments: Insights from a Real Estate Architect

Banks, Insurances & Third Pillar
1

Hello everyone,

I am 33 years old, without children, and I have been working as an architect running my own architectural firm for several years now. I specialize in developing real estate promotions for villas in French-speaking Switzerland. At the moment, I am not a homeowner of my primary residence, but a tenant, in order to maximize my capital within my business.

For various reasons, I have filled my second pillar by maximizing LPP savings, avoiding paying myself too high salaries. The available LPP amount now stands at approximately CHF 110,000. Seeing the return on investment in my third pillar (7-8% per year), while my savings in the second pillar are earning only 1% per year, is unsettling. This underutilized capital, compounded over time, represents a significant missed opportunity compared to a third pillar invested in stocks. I don’t even dare to open an Excel spreadsheet to calculate the theoretical difference over 30 years
 Therefore, I am seeking intelligent solutions to increase the profitability of this capital, which is currently idling with my pension fund.

One of my current thoughts is to withdraw this amount to purchase land with a concrete project, build a villa for my primary residence, and then sell it as soon as it’s constructed. Then, pay the taxes (22%), return the initial capital to the second pillar, or replicate this scheme if the experience proves successful.

Firstly, what do you think of this initial idea, and if anyone has already experimented with using their LPP assets in this way, what are your conclusions?
Secondly, do you have any similar ideas or differing opinions?

Looking forward to hearing from you.

Bonjour Ă  tous,
J’ai 33 ans, sans enfant, architecte Ă  mon propre compte dans mon bureau d’architecte depuis plusieurs annĂ©es. Je dĂ©veloppe pour mon entreprise des promotions immobiliĂšres de villas en Suisse romande. Pour l’heure, je ne suis pas propriĂ©taire de ma rĂ©sidence principale, mais locataire afin de faire travailler au maximum mon capital dans mon entreprise.

Pour divers raisons, j’ai rempli mon 2e pilier en boostant le plus d’épargne LPP possible en Ă©vitant de me verser des salaires trop Ă©levĂ©s. Le montant disponible LPP se monte aujourd’hui Ă  +/- CHF 110’000.-. En voyant la rentabilitĂ© du capital investi dans mon 3e pilier (7-8% par an), voir mon Ă©pargne dans le 2e pilier rĂ©munĂ©rĂ©e Ă  1% par an me fait mal au ventre
. ! Ce capital sous exploitĂ© et cumulĂ© par l’effet du temps, cela fait un manque Ă  gagner Ă©norme par rapport Ă  un 3e pilier investi en actions. Je n’ose mĂȘme pas prendre un tableau Excel pour calculer la diffĂ©rence thĂ©orique sur 30 ans
. Je recherche alors des solutions intelligentes afin d’augmenter la rentabilitĂ© de ce capital, qui dort bĂȘtement auprĂšs de ma caisse de prĂ©voyance.

Un de mes rĂ©flexions du moment serait de retirer cette somme en achetant un terrain avec projet concret, y construire une villa pour « ma » rĂ©sidence principale, puis la revendre aussitĂŽt celle-ci construite. Ensuite payer les impĂŽts (22%), renvoyer le capital initial sur le 2e pilier ou reproduire ce schĂ©ma si l’expĂ©rience est convaincante.

PremiĂšrement que pensez-vous de cette premiĂšre idĂ©e, et si quelqu’un l’a dĂ©jĂ  expĂ©rimentĂ©e via son avoir de LPP, quelles sont vos conclusions ?
DeuxiĂšmement avez-vous d’autres idĂ©es du mĂȘme type ou d’autres avis ?

Au plaisir de vous lire.

2

You are one of the lucky one to run your own firm, so you can choose a better LPP provider with higher return.
Also if you have an higher salary than 148k, you can use plan 1e for the salary above this amount. So you can choose your allocation.

I don’t see any issue with your scenario, but it’s not a long term plan that why I would advise to find a better LPP pension fund.

Note:
https://finpension.ch/fr/fonds-retraite-pour-laccession-propriete/
“Le retrait anticipĂ© EPL n’est pas admis pour l’achat de terrains Ă  bĂątir. Ce n’est que lorsqu’un projet de construction approuvĂ© a Ă©tĂ© soumis que l’EPL peut ĂȘtre considĂ©rĂ©.”

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3

For many, an option is to resign from your employer, transfer the balance from their underperforming pension fund to a FreizĂŒgigkeitseinrichtung, and manage the investments yourselves to the degree possible.

This scheme involves ‘forgetting’ to transfer the funds back to the (likely underperforming) next employer’s pension fund though. Your starting situation is a bit different of course.

4

As a company owner, I would switch to a provider with a high stock allocation, for instance Integral (60%) or Profond (50%). If your salary is high enough, an additional 1e plan might also be very interesting. There, you can have very high stock allocations with very low fees, for instance at finpension.

If the ROI (after taxes, interest, and considering the effort and low diversification) is high enough, your plan could also be a good idea. However, I would definitely check beforehand if that is even allowed. Withdrawing is only allowed for properties that you live in. And there is a federal court judgement where they mention that what you are planning to do goes against the intention of withdrawing and is not a valid reason for a withdrawal (9C_293/2020 01.07.2021):

Anders, nĂ€mlich als erschlichen (dazu: SCHÖBI, a.a.O. S. 51), wĂ€re ein Vorbezug dann zu bewerten, wenn dieser von allem Anfang an einzig eine gewinnorientierte Investition im Blick hĂ€tte. Dies liefe dem Zweck des Vorbezugs an sich zuwider und hĂ€tte deshalb eine RĂŒckzahlung bzw. RĂŒckabwicklung zur Folge.

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5

That’s illegal (and was discussed in this forum already)

There is only one exception when your savings from employer A exceeds what was calculated by employer B. The delta can be invested in a vested benefits account

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Did you take into account real estate capital gains tax which is usually quit high when selling shortly after purchase.

7

I understand that withdrawals from EPL are not allowed for purchasing building land as per the current conditions. However, it’s worth noting that in certain cases, land with approved building permits, even without existing construction, may be considered differently. Given our plans for an approved construction project in the near future, I believe it’s worth exploring whether our specific case could qualify for an EPL withdrawal. I’m open to discussing this further and assessing how it could benefit our situation.

8

I am not allowed to choose my strategy aggressively at this stage, which is a great pity. Currently, Viac has just updated a “personalized strategy” even with the choice of a BTC ETF, which is crazy. With the 2nd pillars, it’s opaque and without performance. The judgment you mentioned seems to show that the fund was wrong. Even if here I am not aiming to rent, but to be in the main residence for a few days and then resell and return the cash.

The judgment you mentioned seems to demonstrate that the fund was wrong. Even though my intention here is not to rent out, but rather to stay as a primary residence for a few days and then resell and return the liquidity.

9

Yes, as I mentioned in the introductory text, according to the tables found, a tax of 22% is due for a resale within less than 2 years in my canton of residence.

Thank you all of you for you answers.
Do you have any advice or other tips that you have implemented yourself, or heard about?

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How so? Aren’t you the owner and sole employee?

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Disclaimer: I am not an expert on the topic, far from it.

That, in my understanding, definitely stretches the boundary of what the EPL law is made for and of what the pension fund will likely agree to on a knowing basis. I can definitely see a pension fund not agreeing to free the 2nd pillar amount after a few rounds doing this (if you really intend to do it in chains), unless what you are really doing is transfering the use of the 2nd pillar to a new property each time.

Withdrawing the 2nd pillar and using it to buy a property comes with fees:

  • withdrawal fees, which are not recoverable.
  • taxes, which are recoverable but will incur opportunity cost as the money spent paying them can’t be invested in something else until the 2nd pillar is paid back and the taxes refunded.

On top of that, own ownership real estate has other fees that can be not insignificant, depending on the canton you do it in. It is possible that the project makes sense on a financial basis but I would double check it before trying. As an architect, you are primed to have access to people with experience or knowledge of the returns of using 2nd pillar funds for real estate ventures. What’s your network’s point of view on it?