The repurchasing of LPP can jeopardize the constitution of personal funds
While 2nd pillar repurchase has undeniable advantages, particularly in terms of taxation, it can have consequences for the use of this capital to build up the equity required for a property purchase...
Repurchasing one's LPP, i.e. making voluntary payments into your pension fund, has several advantages:
- Optimization of your retirement assets (pension and capital)
- Improved pension benefits (disability pension, disabled person's child's pension, widow's pension, orphan's pension)
- Increase in tax deductions (amount of the purchase fully tax deductible)
However, there is one important point to bear in mind if you are relying on your pension capital to build up your personal funds: Repurchasing your LPP will jeopardize the possibility of making withdrawals from the pension fund for a period of 3 years.
You should also check the health of your pension fund to see if it is not under-covered (if you put in CHF 1, you should get at least CHF 1 back).
Take into account the time limit for the withdrawal of the capital
Article 79b, paragraph 3 of the LPP law (FR) stipulates that "benefits resulting from a purchase may not be paid out in the form of capital by pension funds before the end of a three-year period".
This blocking period applies to both lump-sum payments on retirement and to early withdrawals in the event of leaving Switzerland, self-employment or the promotion of home ownership (EPL).
Why take this measure?
LPP repurchases are intended to cover a pension gap, a practice encouraged by the possibility of deducting the purchase amount from taxable income. The tax saving is higher than the tax on capital benefits applied when withdrawing from the LPP. The three-year blocking period is a precautionary measure to avoid abuse.
Take into account the complete blocking of the capital
Contrary to what one might think, the repurchase blocks the entire retirement capital for a period of 3 years and not only the purchase amount.
What are the consequences?
If the blocking period is not respected and you make a withdrawal from your pension fund to buy a home, you will be obliged to repay the tax savings up to the amount withdrawn.
You have CHF 200,000 available in your pension fund for the encouragement of home ownership (EPL). You make a BVG purchase of CHF 300,000. The credit balance therefore amounts to CHF 500,000. The purchase amount is fully tax-deductible, i.e. the CHF 300,000.
You then withdraw the CHF 200,000 you had before the purchase within 3 years. You will have to repay the tax gain realized on the CHF 200,000.
What are the alternatives?
As an alternative to the early withdrawal of part of your LPP, you have the possibility of pledging this capital. To find out more, please contact us and we will explain the advantages of pledging.