Use 2nd pillar to finance property, what happens if I leave Switzerland?

Real Estate
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Hi all,

I´m 39, and hoping to FIRE within about 7-10 years from here. Obviously as a good mustachian I have my wealth mostly in low cost index funds, but also hold a couple of rental properties in France. When I do FIRE I am likely to leave Switzerland to live in one of my properties in France.

In the meanwhile I am looking at my 2nd and 3rd pillars and wondering if I wouldn´t be better off to unlock them early and put them to better use to buy buying a primary home in Switzerland. I´ve enough there to fully cover the deposit and then some.

What would happen in 7-10 years if I left Switzerland, could I hold onto the property and rent it out? I´m not sure if I´d be forced to sell it and buyback my 2nd pillar contributions.

Are there other considerations I should be aware of?.. I know I´ll get taxed around 6% on the withdrawal, anything else I should consider?

Many thanks!
Alan

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Hi,

There was recently a decision by the federal court regarding renting out a property that was paid with 2nd pillar contributions: Bundesgericht: Aus der PK finanzierte Wohnung kann vermietet werden | Handelszeitung

The pension fund wanted the money back, but the federal court decided that it is fine to rent out the property later, as long as you did not buy it with that intention (and lived in it for a sufficiently long time).

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@alanmack Do you have a Swiss nationality ?

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@FunnyDjo I do actually! I was naturalised in 2021

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Maybe you should also consider the rental return of this property when you will be gone ?
Will it be better than your LPP ?
It will be a concentrated retirement investment into 1 property versus a LPP fund much more diversified.

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If you are fully aware about the various withdrawal conditions before and at 65 years old, you have it pretty much covered. Real estate for own use, self-employment and moving outside of EU are the only accepted ways to withdraw 100% of pillar 2/3 money (added: before 65)

By moving to France you would have to leave the mandatory part of 2nd pillar on a “Freizügigkeitskonto” with little chance of good investment vehicles (mostly actively managed funds)…

The only optimization I see is to play it like I did in Luxembourg (not sure if it works the same in France). I ended up paying less than 1% tax on the withdrawal as I was only earning a salary part of the year. Took me 1.5 years to complete the transaction.
(Kapitalbezug der Pensionskasse im Ausland - Primal Matrix)

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You could withdraw within the the EU as well, as long as you’re not subject to mandatory occupational insurance. VIAC or finpension do have vested benefits solutions with low cost index funds as well.

You can usually withdraw (5 years before turning 65) at 60 from a vested benefits account.

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The law governing properties financed with the second pillar vaguely states that a home can be temporarily rented out if the owner is temporarily unable to live in it.

The court decision last year (see 0xLambda’s link above) helped to clarify this better.

The purpose of the second pillar is to provide for retirement. A property is a solid investment for retirement. The laws which require you to repay your pension fund if you sell the property are meant to prevent people from squandering their retirement assets (e.g. selling a home to finance a world tour or risky investments, for example). So although the home must be your primary residence and you have to repay your pension fund if you sell it, renting it out is generally acceptable.

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Any insights from the forum what happens if you sell the property in Switzerland whilst overseas - would you need to repay the pension fund /Vested Benefit fund or would this requirement be waived due to no longer being resident?

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I’ve researched this, and it is somewhat vague. But from what I have gathered, it works like this:

If you move to an EFTA/EU country, your pillar 2 assets would remain bonded to a Swiss vested benefits foundation, unless you become self-employed or otherwise cease to fall under pension fund requirements. So you would have to repay. This would apply to selling a home outside of Switzerland as well.

If you move outside of EFTA or the EU, your assets are no longer bonded to a Swiss vested benefits foundation. In this case, there would be no obligation to repay a Swiss vested benefits foundation when you sell the property. Obviously there would be little argument for keeping pillar 2 assets in a Swiss vested benefits foundation in the first place, since it is not obligatory.

If you live in a foreign country but work in Switzerland, then you may remain under Swiss social security (including pillar 2 obligations) in some cases.