Can I buy an apartment without affecting my pension provision?

The ideal solution: financing from free funds

The starting point: what does the bank require?

To understand why buying a flat without pension capital is so challenging, we need to look at the minimum regulatory requirements. The Financial Market Authority stipulates that

• At least 10 per cent of the mortgage lending value must be so-called "hard" equity (assets that do not originate from the 2nd pillar).
• The remaining 10 per cent may come from the second pillar.

If you decide to buy a flat without pension capital, you voluntarily waive option 2. This means that you must raise the full 20 per cent (plus approx. 4 per cent incidental purchase costs) from free, liquid funds. With a purchase price of CHF 1 million, this means that you need CHF 240,000 in cash in your account (or in securities) to achieve your goal of buying a flat without using your pension capital.

Why it makes sense to forego pension funds

Why should you do this to yourself? The project of buying a flat without pension capital has massive advantages:

• No pension gap: those who withdraw money from their pension fund often drastically reduce their old-age pension. When buying a flat without pension capital, your pension entitlement remains 100 per cent intact.
• Tax advantages: An early withdrawal triggers an immediate capital gains tax. If you pursue the goal of buying a flat without pension capital, you avoid this tax and continue to benefit from the compound interest effect in the tax-free pension envelope.
• Risk protection: Many pension funds also reduce disability or death benefits in the event of early withdrawal. Buying a flat without pension capital protects you and your family from these coverage gaps.

Strategies for buying a flat without pension capital

If you don't have the necessary cash in your savings account, there are still ways to achieve your goal of buying a flat without pension capital.

1. Advance inheritance or gift

The most common method of buying a flat without pension capital is with the support of family. An advance inheritance is considered "hard" equity. Important: the money must be a gift, not a loan. A loan would increase your debt and strain your affordability. With an advance inheritance, you can clear the 20 per cent hurdle and successfully buy a flat without pension capital.

2. Lombard loans and securities

Do you have a share portfolio? Instead of selling the shares (and incurring taxes or book losses), you can use them as collateral. A Lombard loan serves as a substitute for equity capital. This allows you to buy a flat without having to liquidate your pension capital. You get double the benefit from your assets: they continue to work on the stock market and at the same time secure your mortgage.

3. Pledging instead of early withdrawal: the middle ground

Strictly speaking, this is not quite the same as buying an apartment without pension capital, but it is the best alternative. Instead of withdrawing the money from your pension fund or pillar 3a (early withdrawal), you simply pledge it.

• The money remains in the pot and continues to earn interest.
• The bank receives it as collateral.
• You usually have to pay higher interest rates (because the mortgage is higher), but you avoid the pension gap and taxes. For many, pledging is the only chance to implement the principle of buying a flat without pension capital (in the sense of capital preservation).

The challenge of affordability

Anyone who goes through with the project of buying a flat without pension capital and chooses to pledge their pension capital, for example, will have a higher mortgage debt. Example:

• With advance withdrawal: £800,000 mortgage.
• Without early withdrawal (pledge/free funds): possibly a £900,000 mortgage (if additional collateral is not required and banks are accommodating, which is rare) or even the full 20% cash.

If you really want to buy a flat without using your pension capital, i.e. you bring 20% cash, your mortgage will be just as low. The problem lies more in saving up the cash.

Discipline as the key to success

The goal of buying a flat without pension capital usually requires years of preparation. Savings plans, bonus payments and a modest lifestyle are often necessary to save up the amount. But the effort is worth it. Those who manage to buy a flat without pension capital are on two strong financial feet: the property and an intact pension plan.

Especially for newcomers, whose pension fund assets are often still small, buying an apartment without pension capital is often not a choice, but a necessity. Since there are often waiting periods for early pension withdrawals (for non-mandatory purchases) in the first five years after moving to Switzerland, expats often have no choice but to buy an apartment without pension capital.

Are there any risks involved in foregoing pension funds?

Are there any disadvantages to buying a flat without using your pension savings? The only disadvantage is the liquidity bottleneck. If you put all your available savings into the property in order to buy a flat without using your pension savings, you may find yourself without any reserves for emergencies or renovations. Experts therefore advise: plan your project to buy a flat without pension capital in such a way that you still have a "nest egg" of approximately 3 to 6 months' salary in your account after the purchase. Wanting to buy a flat without pension capital and then finding yourself illiquid is a high risk.

Conclusion

The answer to the question "Can I buy a flat without pension capital?" is a clear yes – provided you have sufficient free liquidity or supportive family members. It is the most financially sound way to become a homeowner. You protect your pension, save on taxes and retain full insurance cover.

However, the plan to buy a flat without pension capital is a hurdle for young buyers without an inheritance. In this case, pledging your pension funds can be a smart compromise. It comes closest to the ideal of buying a flat without pension capital, as the capital is preserved. Analyse your situation objectively: is the goal of buying a flat without pension capital realistically achievable, or is pledging a better bridge?

Have Loft review your individual financing situation to find the optimal path between security and ownership.

Glossary

• Buying a flat without pension capital: Financing a property exclusively with free funds (savings account, securities, inheritance) without accessing funds from the 2nd or 3rd pillar.
• Hard equity: Capital that does not come from occupational pension provision. For the project of buying a flat without pension capital, this (plus ancillary costs) must cover approx. 24-25% of the purchase price.
• Pledge: Depositing pension assets with the bank as collateral without withdrawing the money. An alternative to early withdrawal when buying a flat without pension capital.
• Capital gains tax: A tax that is payable when you withdraw pension funds. Anyone who achieves the goal of buying a flat without pension capital avoids this tax.
• Pension gap: The difference between your last salary and your retirement pension. The project of buying a home without pension capital prevents this gap from widening as a result of the property purchase.