Retirement planning for the self-employed – what you need to know
Many employees dream of going it alone one day. This may involve launching a start-up or coming up with a unique business idea – whatever you’re interested in, going self-employed can be an exciting time. If you’re self-employed and want to enjoy a comfortable lifestyle when you’re older, it’s a very good idea to look into solutions as early as possible. You can then fully focus on your new business.
The self-employed have these obligations
The state pension (1st pillar) is also mandatory for the self-employed. In contrast to the employed, the self-employed have to pay into the 1st pillar themselves. This is regardless of what legal form you select for your company. The reason for this is that the state pension is mandatory and doesn’t just cover old-age and surviving dependants insurance (OASI), but also disability insurance (IV) and loss of earnings compensation (EO). In future, you’ll have to pay into your mandatory pension plan yourself. To do this, the first thing you need to do is register as “self-employed” with the compensation office for your canton. The compensation office will then examine whether you meet the criteria for qualification as self-employed. As the compensation office will need invoices and documents to do this, you should only register with them once you have taken up self-employment, and then pay the necessary sums retroactively.
If you start saving up early, you’ll avoid a rude awakening later on.
In some cases, your compensation office will only determine several years later what contributions you will actually have to pay for a financial year. This is because pillar 1 contributions are based on definitive tax bills. In other words, your subsequent OASI bill may be higher than previous years after a particularly successful year. This is why it is a good idea to start thinking about saving up for your mandatory pension plan early on.
Don’t forget to insure yourself and your employees
As a self-employed person, you will pay between 5.371% and 10% in OASI/IV/EO depending on your annual income. The minimum sum for an annual income of less than CHF 9,600 is CHF 503 a year. Up to an income of CHF 148,200, you’ll also pay family allowances (where applicable). Is your company doing so well you can take on additional staff? If so, you must remember that you’ll also have to pay employee contributions.
How to take out insurance voluntarily
The self-employed are not subject to the mandatory occupational pension pillar (OPA). But you can take out insurance voluntarily. By doing so, you’ll save up capital to cover yourself against the risks associated with old age, disability and death. The following options are available to you:
- several professional bodies have their own pension fund schemes. If you’re self-employed, it is well worth speaking to your professional body, looking into the conditions and taking out insurance if necessary.
- If you do not have a mandatory pension and cannot take out insurance with a pension fund through a professional body, you are entitled to join the Substitute Occupational Benefit Institution. Find out more by going to the website or get in touch with the Substitute Occupational Benefit Institution.
The following applies to accident insurance (UVG): you must be insured with your health insurer against accidents at the very least. However, this will not provide any benefits in the event of a loss of earnings. As such, taking out private accident insurance can also be a very good idea.
How to insure your employees
An occupational pension (OPA) and accident insurance (UVG) are mandatory for your employees. You must therefore register and insure these employees, unless:
- your employees are not yet liable to pay OASI contributions,
- they earn less than CHF 21,510 a year,
- they have already reached statutory retirement age,
- they are employed on a fixed-term contract for a maximum of 3 months,
- they work for you on a part-time basis, meaning they are already earning an income through their main job or self-employment.
To insure your employees, you must join a registered pension fund. You must also take out mandatory accident insurance if you employ staff. This must cover accidents at work and illness, as well as non-occupational accidents, for a level of employment of eight hours or more a week. Is your business not insured with SUVA, the Swiss National Accident Insurance Fund? In which case, insure your employees with a health insurer, a private insurer or public accident insurance. Daily allowance insurance can also be a very sensible idea. After all, as an employer, you’re ultimately obliged to pay daily allowances.
Pension funds are attractive if you have a high salary
The self-employed can decide to join a pension fund if they wish. This is an option if you earn at least CHF 21,510 (as of 2021) a year. This of course means you’ll be paying both employee and employer contributions. If you take on employees, you can also join the pension fund of your employees. Your institution’s pension fund rules will tell you whether this is allowed or not. If you are a member of a professional body that has its own pension fund, you can join it. Does none of this apply to you? If so, you ought to consider whether, having done the research, you wish to join the Substitute Occupational Benefit Institution. In this instance you have the option of insuring the mandatory amount. If you do not pay into pillar 2, you can save up under pillar 3 to give yourself coverage.
Claim increased tax reduction
Even if you are a self-employed private individual, you can save up via pillar 3a by opting for a fixed pension plan:
- self-employed individuals who are part of a pension fund can pay a maximum of CHF 6,883 into pillar 3a (fixed pension plan). In your tax return, you can deduct the amount you have actually paid in from your taxable income (in the same way employed individuals can).
- Self-employed individuals who are not part of a pension fund can pay up to 20% of their income (net based on their tax return once OASI/IV/EO has been deducted) into pillar 3a, though no more than CHF 34,416 a year (as of 2021).
If you are not part of a pension fund, make sure you are also covered against the risks associated with disability and death – don’t equate “retirement planning” with just saving up for old age. You can of course also opt for the flexible retirement plan under pillar 3b at any time.
Even a fixed pension plan doesn’t always have to be just a savings account. For instance, you can invest in retirement funds through your retirement savings account 3a, or alternatively take out 3a life insurance.
Finding the right combination for you
There are many ways you can cover yourself against the risks associated with old age, death and disability if you’re self-employed. The biggest question for most people is likely to be whether they should opt to take out insurance under pillar 2, or rely entirely on pillar 3. For most self-employed people, a combination of different retirement planning solutions and insurance policies will be the best bet. Regardless of the legal form of your company (1st pillar), your working hours, your income, the number of employees you have/their level of employment, you will want your own unique combination.