Pledging your pension fund (LPP)

You might have been informed that you could pledge instead of withdrawing your pension funds (LPP).

When considering that option, be aware that many mortgage provider financing policies do not accept such a process.

Why should you pledge your pension funds (LPP) ?

There are two main reasons to do so:

1. Withdrawing pension funds can lead to numerous disadvantages : losing the future earnings that will be generated by your pension fund provider, paying taxes on withdrawing the funds, ending your pension fund tax deductible buy-back possibilities, or losing your pension fund benefits
2. Lowering your risk profile to the mortgage provider, in order to obtain better loan rates

How does it work ?

Let’s say you would like to purchase a property for a price of CHF 1 mio, and have at your disposal CHF 100k cash and CHF 100k from your pension fund (closing costs not included).

Your banker will probably advise to withdraw all of your assets, in order to come up with a down payment of CHF 200k (closing costs not included), representing 20% of the purchase price, and a loan of CHF 800k. In that case, the annual payment of the principal will be CHF 9k.

However, an option that could be more strategic, would be to pledge your pension funds (instead of withdrawing them), and obtain a CHF 900k loan from the lender (90% of the purchase price). In that case, the annual payment of the principal will be CHF 15’600.-

A consultative meeting would be necessary to discuss this matter, in order for you to make a decision weighing your options.