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

Author

Listed:
  • Bütler, Monika
  • Stadelmann, Sabrina
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 For the withdrawers, the average share of pension assets withdrawn decreased by 5.5 percentage points, mainly driven by individuals with lower levels of pension wealth and of older age.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.

Suggested Citation

  • Bütler, Monika & Stadelmann, Sabrina, 2019. "Building on pension: Second pillar wealth as a way to finance real estate?," Economics Working Paper Series 1913, University of St. Gallen, School of Economics and Political Science, revised Jan 2020.
    • Handle: RePEc:usg:econwp:2019:13
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Retirement; annuity; home ownership;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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