Building on pension: Second pillar wealth as a way to finance real estate?

Monika Bütler () and Sabrina Stadelmann ()

No 1913, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: Home ownership is not only an important asset, but also provides an income stream in kind. If individuals use pension savings to purchase real estate, they face a trade-off between alleviating borrowing constraints when young and lower liquid retirement means when old. We study the decision to withdraw retirement assets for home purchase in advance by analyzing a recent reform. A change in down payment requirements made such early withdrawals less attractive, as borrowers are obliged to provide a larger amount of nonpension equity for a home purchase. Using individual-level data from a large Swiss occupational pension provider, we find that the share of individuals who withdrew in a given year dropped by one sixth. For the withdrawers, the average share of pension assets withdrawn decreased by 5.5 percentage points, mainly driven by individuals with lower levels of pension wealth and of older age. Nonetheless, our analysis also shows that while limiting second pillar withdrawals can aggravate the borrowing constraint to some degree, they are not the only constraining factor when purchasing a home.

Keywords: Retirement; annuity; home ownership (search for similar items in EconPapers)
JEL-codes: D81 D91 H24 J26 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2019-09, Revised 2020-01
New Economics Papers: this item is included in nep-age and nep-eur
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Journal Article: Building on a pension: Second pillar wealth as a way to finance real estate? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2019:13

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