Saving for your own home with your pillar 3a Saving for your own home with your pillar 3a

You can withdraw your pillar 3a assets to purchase your own property.

You can withdraw your pillar 3a assets to purchase your own property.

Pillar 3a as a support for the purchase of your own home

Your pillar 3a can be a major help when it comes to making your dream of owning your own home come true, and there are various ways in which your pension assets can be used to purchase real estate (acquisition of owner-occupied residential property).

Withdrawal of pillar 3a

Withdrawals, i.e. the advance withdrawal of pillar 3a funds, lead to more equity capital and helps you to achieve the minimum of 20% own funds required to take out a mortgage. In addition, the increase in equity capital can reduce the mortgage. The lower the mortgage, the less mortgage interest needs to be paid.

The tax payable on the 3a assets withdrawn must be taken into account. This means that not all of the 3a capital will be available for financing the residential property.

Pledge pillar 3

Pillar 3a can be pledged in favour of a mortgage, and thus serves as collateral for the bank. This makes it possible to take out a larger mortgage. In the event of pledging, the capital remains in the pillar 3a account or custody account. The pension assets are only touched when realising pledged property. This occurs when the mortgage interest payments can no longer be made.

Amortisation (direct or indirect)

The mortgage can be amortised (i.e. repaid) either directly or indirectly:

  • Direct amortisation: the pillar 3a assets are withdrawn and repaid to the bank. This reduces the mortgage debt, and thus also the interest costs of the mortgage.
  • Indirect amortisation: regular payments continue to be made into the pillar 3a, and the tax advantages of the third pillar are retained. The mortgage debt does not change and the debt is not reduced. The 3a assets which are paid in on a regular basis are pledged and used to repay the mortgage at a later date (when the mortgage becomes due or on retirement).

Good to know

Good to know

Pension assets can also be used for enhancing or maintaining the value of your investments in residential property or to purchase share certificates in a housing cooperative.

Advantages and disadvantages of each option

The form in which the pillar 3a is used to purchase real estate is highly individual and depends on the person’s financial situation. Nevertheless, it is important to know the advantages and disadvantages of the various options available.

Withdrawal

Advantages:
  • Higher equity capital
  • Smaller mortgage
  • Lower mortgage interest burden

Disadvantages:

  • Withdrawn capital must be taxed
  • Lower tax deductions for mortgage interest due to the smaller interest burden
  • No repayment into the 3a possible
  • Lower 3a capital on retirement

Pledges

Advantages:
  • Higher borrowed capital possible
  • Reduced tax burden due to higher mortgage debt
  • Retirement assets are not reduced
  • Interest or return on the capital in the pillar 3a continues

Disadvantages:

  • Higher interest burden on the mortgage
  • Risk of realising pledged property

Amortisation

Advantages:

Direct:

  • Mortgage debt and interest burden becomes smaller

Indirect:

  • Tax deductions for mortgage debt as well as pillar 3a deposits

Disadvantages:

Direct:

  • Lower tax deductions due to lower mortgage amount
  • Additional budget needed for private retirement provision

Indirect:

  • The mortgage debt remains the same
  • The interest burden does not decrease

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