Building on a Pension: Second Pillar Wealth as a Way to Finance Real Estate?

Item Type Journal paper
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 non-pension 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 For the withdrawers, the average share of pension assets withdrawn decreased by percentage points, mainly driven by individuals with lower levels of pension wealth and of older age.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.

Authors Bütler, Monika & Stadelmann, Sabrina
Journal or Publication Title The Journal of the Economics of Ageing
Language English
Subjects economics
HSG Classification contribution to scientific community
Refereed Yes
Date October 2020
Publisher Elsevier
Volume 17
Number 100261
Number of Pages 27
ISSN 2212-828X
Publisher DOI 10.1016/j.jeoa.2020.100261
Official URL https://www.sciencedirect.com/science/article/pii/...
Depositing User Susanne Moser
Date Deposited 31 Mar 2021 18:17
Last Modified 31 Mar 2021 18:45
URI: https://www.alexandria.unisg.ch/publications/262908

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Citation

Bütler, Monika & Stadelmann, Sabrina (2020) Building on a Pension: Second Pillar Wealth as a Way to Finance Real Estate? The Journal of the Economics of Ageing, 17 (100261). ISSN 2212-828X

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https://www.alexandria.unisg.ch/id/eprint/262908
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