3rd pillar and real estate in Switzerland

The 3rd pillar plays a central role in real estate financing in Switzerland. Whether it involves building your equity for a first purchase, optimizing your mortgage through indirect amortization, or financing renovation work, your private pension is a powerful tool to master.

Three ways to use the 3rd pillar for real estate

The 3rd pillar in Swiss real estate financing

In Switzerland, buying property requires in principle at least 20% equity. The 3rd pillar is one of the most commonly used sources for building this contribution, alongside personal savings and the 2nd pillar.

Here is how the 3rd pillar fits into the standard financing scheme:

Withdrawal or pledging: what to choose?

Two options are available for using your 3rd pillar for real estate:

EPL withdrawal (early payment)

You actually withdraw the capital from your 3rd pillar and use it as equity. The capital permanently leaves the pension system.

• Advantage: You reduce the amount of your mortgage and therefore the interest
• Disadvantage: You lose the tax deduction on future contributions (the account is closed) and you must pay a withdrawal tax

Pledging (indirect amortization)

Your 3rd pillar is used as security with the bank, but the capital remains invested. You continue contributing and benefiting from the tax deduction.

• Advantage: Double tax deduction (3a contributions + mortgage interest) and capital that continues to grow
• Disadvantage: The mortgage remains higher, so interest is higher too

Learn more about indirect amortization with the 3rd pillar.

General conditions of use

Regardless of the option chosen, the following conditions apply:

• The property must be your primary residence in Switzerland
• Written spousal consent is mandatory for married persons
• An EPL withdrawal is only possible every 5 years
• The minimum withdrawal amount is generally CHF 20,000
• In case of resale, an obligation to reimburse the 3rd pillar may apply

Tax impact

Withdrawing the 3rd pillar for real estate is subject to a capital benefits tax, like any pillar 3a withdrawal. This tax is calculated separately from income, at a reduced rate that varies by canton.

Important: this EPL withdrawal tax can be recovered if you reimburse the withdrawn amount into your 3rd pillar (EPL reimbursement), which is possible up to 3 years before retirement age.

Tax amount by canton

The withdrawal tax varies considerably from one canton to another. For a withdrawal of CHF 100,000, the tax can range from approximately CHF 4,000 in the most favorable cantons (such as Schwyz or Zug) to more than CHF 10,000 in other cantons. It is therefore important to plan the timing and canton of your withdrawal, especially if you are considering a move soon. Cross-border workers with quasi-resident status should check the specific rules applicable to their situation.

To estimate the tax on your withdrawal, use our withdrawal tax calculator.

The 10% equity rule outside the 2nd pillar

Since the revision of FINMA (Swiss Financial Market Supervisory Authority) guidelines, Swiss banks require that at least 10% of the purchase price come from equity other than the 2nd pillar. This rule has considerably strengthened the role of the 3rd pillar in access to home ownership.

Concretely, the accepted sources for this 10% include:

• The 3rd pillar (3a and 3b): EPL withdrawal or pledging of pillar 3a is the most common solution
• Bank savings: savings accounts, securities investments, term deposits
• Donations and advances on inheritance: financial contributions from family, documented by a notarial deed
• Surrender values of life insurance (3b): surrender of policies not linked to mandatory pension

The remaining 10% (to reach the 20% total equity) can come from the 2nd pillar, through EPL withdrawal or pledging of LPP assets. However, this option reduces your occupational pension benefits, which should be carefully evaluated.

Concrete financing example: property at CHF 800,000

Here is a detailed scenario for the acquisition of an owner-occupied apartment at CHF 800,000, illustrating how the 3rd pillar fits into the financing plan:

Starting situation

A 38-year-old couple, both employees, each contributing to the 3rd pillar for 10 years. They have two 3a accounts totaling CHF 85,000 and bank savings of CHF 40,000. Their combined LPP assets are CHF 250,000.

Financing plan

In this example, the 3rd pillar alone covers more than half of the equity required outside the 2nd pillar. The couple does not need to touch their LPP assets, thus preserving their occupational pension. Note that notary fees and transfer duties (varying by canton, generally between 3% and 5% of the price) must be financed by additional equity.

Alternative with pledging

The same couple could choose to pledge their 3a accounts instead of withdrawing them. In this case, the capital remains invested in the 3rd pillar and serves as security for the bank. The mortgage would then be CHF 760,000 (95% of the price), but the bank would accept this amount thanks to the pledge. The couple would continue deducting their 3a contributions and mortgage interest, for a double tax saving.

Note also that acquisition costs (transfer duties, notary fees, land register entries) should not be overlooked in the overall budget. Depending on the canton, these costs represent between 3% and 5% of the purchase price, i.e. between CHF 24,000 and CHF 40,000 for a property at CHF 800,000. These amounts must be financed by additional equity and cannot be covered by a 3rd pillar EPL withdrawal.

To understand the legal framework for early withdrawal for home ownership, see our page on 3rd pillar withdrawal conditions.

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