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Pensions for the self-employed: what do you really need?

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Many people dream of ending their employee status to become self-employed – but are fearful of insecurity and financial bottlenecks. Don't be scared! Solid pension arrangements are also possible for the self-employed.

Congratulations! You've made the leap into self-employment and are starting your own business. You're full of enthusiasm and are highly motivated, but there are a lot of questions swirling around. Do you have enough start-up capital? Will my business idea work? And what if something happens to me? In your situation, that is actually one of the most important questions. This is because as a business owner, you enjoy a great deal of freedom when it comes to pensions, but you also have a great deal of responsibility to bear for yourself and your family. You should therefore not leave anything to chance when it comes to protecting your income. 

Pensions for the self-employed - the basics 

Pillar 1 of the pension system (federal old-age and survivors’ insurance, disability insurance, loss of earnings compensation scheme and family allowances) is compulsory for everyone, but you have to register yourself. To do so, contact the cantonal compensation office where your company is based. 

Anything else is theoretically optional for you as a business owner, but there are definite recommendations. In terms of retirement provision and protection against long-term inability to work, Pillars 2 and/or 3 are imperative. Although daily benefits insurance and accident insurance are voluntary, they are a matter of course in Switzerland. The financial risk is too great should you have an accident or not be able to work for a long period due to illness. Consult our self-employment page for an overview and further information on insurance options. Use the insurance check for SMEs to find out in just three minutes which insurance types could be a good idea for your SME. 

Pensions: the three-pillar system

The pension system in Switzerland is based on three pillars: state, occupational and private provision. The system aims to ensure that people are financially secure in old age, if they become disabled or if someone they depend on dies.

The compulsory Pillar 1, also referred to as state pension, comprises federal old-age and survivors’ insurance (OASI), disability insurance (DI), and supplementary insurance (SI). It aims to secure livelihood. 

Pillar 2, also called pension fund, comprises occupational benefits insurance (OPA) and accident insurance (AI). It’s also compulsory for employees, and employers are responsible for arranging it for their staff. Together with Pillar 1, it was originally supposed to maintain the accustomed standard of living after retirement. As this is no longer realistic in most cases these days, private pension provision has greatly increased in significance.

Those wishing to make private provision pay contributions into Pillar 3. This is a voluntary and flexible supplement to state pensions and occupational benefits insurance that can be used to plug pension gaps. It is paid out as a pension and/or in capital. There is a difference between tied (Pillar 3a) and flexible pension provision (Pillar 3b). 

With Pillar 3a, you save for your retirement and benefit from significant tax savings.
Anyone in Switzerland subject to OASI can open a Pillar 3a account.
Employed persons with occupational benefits insurance can pay in CHF 6,883 p.a., and those without it CHF 34,416.
You can liquidate Pillar 3a at the earliest five years before reaching the ordinary
OASI retirement age or in the following instances: self-employment, emigration, residential property purchase
The statutory order of succession applies in the event of death.

With Pillar 3b, you follow personal savings goals and receive tax deductions under certain circumstances.
Anyone living in Switzerland can open a Pillar 3b account, and there are no restrictions on how much you can pay in annually, when you can take money out or how long you wish to pay in for.
You are free to choose your beneficiaries in the event of your death.

How can self-employed people provide for their retirement? 

As a business owner, you are responsible for your own retirement provision. You should definitely join an OPA institution at your own instigation and/or make regular contributions into Pillar 3a or 3b, otherwise you risk facing a pension gap after retirement. AXA offers various pension solutions for companies and an attractive pension plan for private persons.

Do the self-employed need a pension fund (OPA)? 

Yes, unless you are switching your pension to Pillar 3a/3b entirely. Many owners of sole proprietorships, general or limited partnerships voluntarily join a pension foundation. Does your sector or industry association have its own pension fund perhaps? An alternative to this is always the OPA National Substitute Pension Plan Foundation. This non-profit organization is the only pension institution in Switzerland that provides benefits for all interested individuals on behalf of the federal government, but only the mandatory minimum. 

There's a special case: if you set up a company limited by shares (AG) or a limited liability company (GmbH), you’re considered to be an employee of your own firm for insurance purposes. Your pension fund assets must then be transferred into the new pension fund.

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What are the advantages of Pillar 3a?

Build up capital: 

  • If you don't belong to a pension fund, you're allowed to pay in up to 20% of your net earned income into Pillar 3a every year. The maximum amount currently stands at almost CHF 34,416 (as at 2022) which is five times the amount that pension fund members are allowed to pay in (CHF 6,883).
  • Your purchases create capital for retirement provision or for inability to work. 
  • As this is tied pension provision, there is no risk of the money being used for ongoing costs contrary to your intent. 

Save on taxes: 

  • You can deduct any purchases from your taxable income in full, saving you several thousands in tax under certain circumstances. 
  • Interest is paid on your Pillar 3a assets and this earned interest is tax-free.
  • The assets saved in Pillar 3a are not subject to wealth tax. Tax only becomes due when the assets are paid out and this at a reduced rate.

Withdraw assets early: 

  • Within the first year of you being self-employed, you can withdraw the money you have saved in Pillar 3a as start-up capital. Since partial withdrawal is not possible, it may make sense to have several 3a accounts. Tip: Pillar 2 also allows early withdrawal of your vested benefits if you become self-employed. 
  • If you're dreaming of buying your own home or emigrating at some point, you are also allowed to withdraw your Pillar 3a assets to do so.
  • You can use the saved funds at any time to make voluntary purchases in the pension fund (OPA). 

Protect your investments and safeguard against risks: 

  • You yourself decide what best suits you and your needs: a pension account (bank) or pension policy (insurance company). Both have their advantages and disadvantages, but the main thing is that you begin saving for OASI retirement as early as possible. 
  • Many private pension solutions include modules with return-oriented investments in the financial and equity markets.
  • A pension policy or a pension plan allows you to insure against life risks such as disability or death.

Badly injured in an accident or seriously ill - what now?

If anything happens to you, it can have far-reaching and long-term consequences - not just for you but also for your family and business partners. Depending on the situation, occupational disabilityor term life insurance is a good idea to protect people who depend on you.

Are you prepared for the future? 

Is your pension provision in tune with your needs, in respect of your professional life and retirement? Are you currently able to save for later? Weigh up the strengths and weaknesses of the various options and calmly consider what makes sense in your situation. Joining a pension fund? Making regular payments into a Pillar 3a account? Or is loss of earnings your greatest risk? Discuss your personal goals with a pension advisor. If you haven't yet found the pension solution that suits you best, we're here to support you. Contact us. 

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