How to buy real estate with your supplementary pension (even though you have not retired yet)

Renovating your home or buying an apartment by the beach? You can help finance all your real estate plans through your supplementary pension. Even long before you retire.

1. How does it work?

Most Belgians receive a supplementary pension through their employer, also known as company pensions. Every month, the employer and/or the employee pay in an amount to build up a pension pot. A pension institution then invests this money. Once you retire, you receive the invested capital plus the return on investment either in one lump sum or in instalments. Self-employed people can also build up a supplementary pension for themselves. This is not done through company pensions, but via a supplementary Pension for the Self-Employed (VAPZ), a Pension Contract for the Self-Employed (POZ) or an Individual Pension Commitment (IPT).

In principle, you can only withdraw the money that you have paid in once you retire, at the earliest. But there is one important exception. You can use part of the accumulated reserves to finance real estate plans even before you retire. Buying, building, remodelling, repairing and renovating property or land: all of these are eligible. Those who dream of a second home in Tuscany or Provence can also use this approach. All real estate located within the EU (plus Norway, Liechtenstein and Iceland) is eligible for this treatment.

However, the option of using your supplementary pension to finance real estate must be explicitly spelled out in the rules of your pension institution. You can request these rules from your pension institution or employer. You can also find the rules on your personal page at MyPension.be.

2. How much can you withdraw?

Depending on the terms and conditions of the pension institution, you can generally withdraw 60% to 75% of your accumulated reserves. The older you are and/or the greater the reserves you have built up, the higher the amount you can withdraw. For younger employees, it will probably not be worthwhile yet. Things are different for younger self-employed people, because they can choose to build up a larger reserve themselves. The reason why you can only withdraw part of your reserves is because in the end you will still need to pay social security contributions and taxes whenever your supplementary pension is paid out. The pension institution therefore retains a buffer for this.

3. How can you use your supplementary pension to finance real estate?

There are three different approaches:

• Withdraw an advance against your supplementary pension If you take an advance against your supplementary pension, the pension institution will pay out an amount to you. You can then only use this amount for your real estate plans. When your supplementary pension is paid out at a later date, the capital of your supplementary pension will be reduced by the amount of the advance. From a technical point of view, you are not receiving an advance, but a loan. This is because the money remains in your pension pot, which means that it can generate further income. Most pension institutions therefore charge you interest on the amount that you withdraw as an advance. At first glance, that looks odd, because it’s your own money. However, because it is actually a loan (the pension institution can no longer invest that money), they will ask for offsetting compensation, in the form of interest. The advantage is that you do not have to go to a notary because no (expensive) deed is needed, as is required for a mortgage loan. Depending on the pension institution, the interest rate may also be lower than for a mortgage loan. If you wish, you can repay the advance early. For example, if you receive an inheritance or gift. That way you will pay less interest. Early repayment is voluntary. However, there is one case in which you are obliged to repay the advance. This is when the property for which you have received the advance is removed from your assets. Suppose you use the advance from your supplementary pension to renovate your home. However, after a few years you decide to sell the property. In that case, you must repay the advance immediately to the pension institution.
• Use your supplementary pension rights as collateral for a loan If you take out a (mortgage) loan for your real estate plans, you can use your supplementary pension as an (additional) guarantee or collateral for the repayment of the loan. This means that the pension institution does not lend you any money (i.e. you do not pay any interest), but agrees that the bank can claim your supplementary pension if you are unable to repay and/or you die before you have repaid the loan in full.
• Use your supplementary pension to "repay" your mortgage loan

In the case of an interest-only loan, you borrow from the bank without repaying any capital over the term of the mortgage. You only pay interest throughout the term. When your supplementary pension is paid, the capital amount you borrowed is repaid all at once. It is taken from your supplementary pension pot when you retire or if you die.

The pension institution does not charge you any interest. On the other hand, the interest charged by the bank will be higher than for a traditional loan because you are not repaying any capital during the term.

4. What is the best solution for me?

Everyone's (financial) situation is unique. If you are thinking about using your supplementary pension to realise your real estate plans, then you should always seek information from an expert in this field, such as your notary.