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Securely self-employed: optimizing your pension with Pillar 3a

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Becoming self-employed can lead to worries about long-term financial security. A tied Pillar 3a pension plan is a good way to dispel them. As an added bonus, a private pension offers attractive tax benefits for self-employed people. Is your pension optimized? Read on to find out more.

What is the third pillar?

The Swiss social insurance system comprises three pillars: state, occupational, and private pensions. 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 first pillar, the state pension, is mandatory and entails contributions to federal old-age and survivors’ insurance (OASI), disability insurance, and supplementary benefits. It’s intended to cover your basic needs. The second pillar consists of occupational benefits insurance and accident insurance. It’s also mandatory, and employers are responsible for arranging it for their staff.

Anyone who additionally wants to save privately for retirement can pay into the third pillar, which is divided into tied pensions (Pillar 3a) and flexible pensions (Pillar 3b). Private pensions in the third pillar are voluntary and adaptable, and you’re responsible for arranging your own. They’re very popular in Switzerland and can serve to close any gaps that aren’t covered by the first and second pillars. Working out a personal savings goal will allow you to maintain the standard of living you’re accustomed to after you retire.

How can self-employed people provide for their retirement?

Unlike employees, you don’t have anyone else organizing your pension for you if you’re self-employed. Your social insurance contributions are calculated based on your own estimate of future income subject to OASI. You receive one bill covering contributions for OASI, disability insurance, loss of earnings compensation insurance, family allowance, and the social insurance office’s administrative costs. You need to register with the compensation office in the canton where your company’s based. You also need to arrange your own daily sickness benefits and accident insurance. For an overview of these and further insurance options, see our website for self-employed people.

Self-employed people don’t have occupational benefits insurance through an employer, which creates a gap in coverage. Your company’s legal form has a significant influence on your pension and how you use your vested benefits.

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. You have to transfer your vested benefits from your former employer’s Pillar 2 pension fund to that of your new company.

If you’re a sole proprietor or a partner in a general or limited partnership, occupational benefits insurance isn’t mandatory. The exact requirements are set out in the Swiss Occupational Pensions Act (OPA). However, you do have the option to join a Pillar 2 pension fund.

  • If you employ staff, you can join the same pension fund as them if its regulations allow.
  • If your industry or industry association has its own collective pension foundation, you can join that.
  • You can also join the Substitute Occupational Benefit Institution Foundation LOB, a non-profit organization that covers statutory minimum benefits, at any time. It’s the only pension institution in Switzerland that provides mandatory occupational benefits insurance for all interested employers and individuals on behalf of the federal government.

Do you want even better provision for your retirement? Would you like to achieve your savings goals after ending your self-employment or to minimize your financial risk after reaching the statutory retirement age? If so, Pillar 3a is exactly what you need.

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Providing for the long term with Pillar 3a

Anyone in Switzerland who is subject to OASI contributions can take out a Pillar 3a private pension. The law draws a fundamental distinction between pension accounts with foundations set up by banks and policies sold by insurance companies. These are often integrated into financial products such as cash and custody accounts for retirement savings, life insurance or pension plans. With such a wide range of options on offer, you can tailor your private pension to your specific needs so as to enjoy maximum financial security in retirement.

Saving for retirement with stocks

You can also save for your retirement by investing in stocks. Many private pension solutions, such as life insurance policies and Pillar 3a accounts, offer the option of return-oriented investments in financial and stock markets. Stocks are seen as an integral part of private pension planning these days.

An added bonus: saving on taxes with Pillar 3a

A Pillar 3a solution offers self-employed people various opportunities to save on taxes. For example, you can declare your pension contributions on your tax return and have them deducted from your taxable income. This deduction for payments into the third pillar is subject to the following annual limits:

  • Self-employed people with a Pillar 2 occupational pension can pay up to CHF 6,883 into a tied pension. This limit may vary. 
  • Self-employed people with no Pillar 2 occupational pension who are subject to OASI contributions can pay up to 20% of their net income from employment (up to a maximum of CHF 34,416) into a tied pension. This amount may also vary. 

Payments made into Pillar 3a by December 31 are deducted from your taxable income, significantly reducing your tax bill.

There are also further tax benefits. Income from interest and surpluses is exempt from income tax during the term of your Pillar 3a solution, and lump sums paid out early are taxed at a reduced rate. On top of this, your retirement savings aren’t subject to wealth tax. By contrast, the federal and cantonal tax authorities tax old-age pension annuities in full as income.

Anyone making the leap into self-employment in Switzerland can withdraw both vested benefits and Pillar 3a pension capital early to set up a company.

This effectively increases the company’s equity, so it can bolster its finances without resorting to loans.

Using capital from your occupational pension and Pillar 3a to get your company started

Self-employed people can decide what to do with the capital they’ve saved up in their Pillar 2 occupational pension. They can transfer it to a vested benefits account, take out a vested benefits policy, invest it through a vested benefits custody account or withdraw it early to invest it in their company. The capital can only be withdrawn up to 12 months after the OASI compensation office confirms self-employment. For people who are partially self-employed, the 12-month deadline doesn’t start until the requirement to pay occupational benefits contributions as an employee ceases.

Anyone making the leap into self-employment in Switzerland can withdraw both vested benefits and Pillar 3a pension capital early to set up a company. This effectively increases the company’s equity, so it can bolster its finances without resorting to loans.

Are you considering an early withdrawal from Pillar 3a? Read the AXA blog post “With Pillar 3a into self-employment” to find out how you can use tied pension assets as start-up capital.

Conclusion: pension options for self-employed people

  • If you’re a sole proprietor or a partner in a general or limited partnership, you qualify as self-employed.
  • That means you have to organize your own retirement provision, but you also have a lot more freedom in terms of how you do so.
  • Registering with a compensation office is mandatory. Daily sickness benefits and accident insurance are voluntary but recommended.
  • AXA’s SME insurance check allows you to work out what insurance you need in just a few minutes.
  • Self-employed people can decide whether or not they want to provide for their retirement with an occupational pension.
  • If you do want to maintain coverage in the second pillar, you can join the pension fund set up for your staff, the one run by your industry association or the Substitute Occupational Benefit Institution Foundation LOB.
  • You can pay your vested benefits into the new pension fund or use them as start-up capital for your new company.
  • Tied pension assets in Pillar 3a are a private, voluntary, and tax-deductible form of retirement provision.
  • Flexible pension assets in Pillar 3b are also a useful form of private retirement provision to ensure your long-term financial security. Their tax benefits are subject to certain conditions, but they offer more flexibility.
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Have you provided for your retirement?

Does your pension really suit your needs? Discuss your personal savings goal with your pension advisor. Choosing the right pension solution is vital. How much of your income from self-employment can you afford to set aside? How much would too big a strain on your finances? AXA’s pension experts will be happy to offer helpful information and services tailored to your individual situation. 

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