Retirement planning for the self-employed – an overview

Retirement provision for employees is based on three pillars: state, occupational and private provision. This 3-pillar system is also in principle open to the self-employed. They are compulsorily insured under the Old Age and Survivors’ Insurance (OASI) and Disability Insurance (IV) scheme and pay contributions according to the Loss of Earnings Compensation Scheme (EO). This also applies if you start your own corporation (AG) or limited liability company (GmbH) as you are legally considered an employee in this case. Unlike employees, self-employed individuals are not required to contribute to the second pillar. Accident insurance is also only voluntary.

As a self-employed individual, you therefore have greater flexibility when it comes to planning for your retirement. Because occupational pension plans are not mandatory, it’s all the more important you start saving early for retirement. You have many options to choose from, such as pillar 2, pillar 3a, pillar 3b and insurance products. Which combination of these options is suitable depends on your personal situation and your plans.

However, this greater decision-making freedom means more personal responsibility for decisions affecting your pension. In a worst-case scenario, self-employed persons who neglect retirement planning may have only the OASI pension in old age. If this is not enough to cover their expenses, the formerly self-employed have no choice in old age but to apply for supplementary benefits (EL). In 2023, a total of 223,000 people received supplementary benefits in addition to their OASI benefits.

OASI is the basis of retirement provision – including for the self-employed. However, the state pension is usually not sufficient to maintain the accustomed level of spending in retirement. Finances will be especially tight if you are missing contribution years and lack other pension funds.

For self-employed individuals, the amount of OASI/IV/EO contributions depends on annual earned income. Interest is calculated on the equity you have invested in the company and deducted from your income.

The contribution rate to be paid increases once your income is more than between CHF 9,800 to CHF 58,800 (as of 2024). Above this amount, you pay 10 percent of total earned income, including the minimum contribution of CHF 514 per year. Contributions to the OASI are fully tax-deductible from the operating result as business-related expenses.

How self-employed individuals organize the payment of OASI contributions

The compensation office decides whether, for social insurance purposes, you are self-employed, for example, by reviewing your company’s invoices, offers and contracts. Someone who starts a sole proprietorship, bears the economic risk and has multiple clients is generally considered self-employed. The registration form used to clarify your status can be found on the website of the compensation office.
A distinction is made between provisional and definitive contributions. The compensation fund sets a provisional amount based on your estimated income. This is due every three months. When your tax assessment is completed, the compensation fund retroactively calculates the final contributions for the year in question and demands or refunds the difference. If you already know at the end of the financial year that the advance contributions you paid are too low, you should report this to the compensation office immediately to avoid high default interest.

As a self-employed individual, you can join a pension fund voluntarily. This is considered advantageous in many cases, especially for high-earners. If you do not have any employees, you can join the pension fund of your professional association or the BVG contingency fund if available. If you employ staff at your company, you must insure them with a pension fund. In this case, you can usually also join this pension fund, if you wish. Founders of corporations (AG) or limited liability companies (GmbH) are considered employees under social security law and are required to be fully insured with a pension fund.

Self-employed persons can deduct half of their pension fund contributions from their income subject to OASI contributions. A buy-in of CHF 80,000, for example, reduces the income subject to OASI contributions by CHF 40,000. You do not make any OASI contributions for this amount.

What options are there for pillar 2?

Saving and investing in pillar 3a are an attractive way of providing for retirement for self-employed individuals. Self-employed individuals can contribute significantly more to the tax-privileged pillar 3a than employees. This applies in the event that they do not join a pension fund and plan to use pillar 3 for a large part of their retirement provision. You may contribute up to 20 percent of your net earned income up to a maximum of CHF 35,280 (as of 2024).

If you are affiliated with a pension fund, the maximum amount is CHF 7,056 per year (as of 2024).

What options are there for pillar 3?

Within pillar 3, there is the restricted pension in pillar 3a and the unrestricted pension in pillar 3b. The basic difference is that the benefits in pillar 3a are tied to a number of conditions and regulations, whereas in pillar 3b you can use your capital more freely, but have fewer advantages. A big advantage of pillar 3a is that the deposits can be deducted from taxable income, which is not possible with pillar 3b. Tax advantages in pillar 3b are usually only available if the pension products at banks or insurance companies are intended for retirement provision, similar to pillar 3a.

In pillar 3a, however, you can use the saved capital as starting capital when switching to self-employment, just like in the second pillar, or use it as an advance withdrawal for the purchase of residential property and reduce your tax burden via the contributions. In addition to retirement benefits, you can also insure against the risks of death and disability. In return for these advantages, you accept the limited availability of the funds before retirement.

You can choose from several products to save privately for your retirement in pillar 3a. In principle, you can choose between offers from banks or insurance companies. Your capital for retirement provision will either flow into a retirement account or into a pension custody account. When investing pension capital in investment funds, for example, you can always decide for yourself how much of your pension assets should flow into which funds.

A long time may pass between founding a company and retiring. However, it is better not to put off the topic of retirement planning for too long. By the age of 50 at the latest, you should draw up a detailed budget for the time after retirement. This will allow you to identify potential gaps in OASI and pillar 2 and, ideally, close them.
If you make the right decisions early on, you can optimize the taxation of your retirement benefits. This requires that you withdraw your pillar 3a balance – if available – from your pension fund over a period of several years. To do this, you need to have opened several pillar 3a accounts. Staggered withdrawal avoids paying higher rates of capital withdrawal tax in many cantons, allowing you to save on taxes.

Self-employed individuals can plan and manage their retirement provision in a similar strategic manner as their business operations: autonomously, long-term and flexibly. The pension system offers you many possibilities to save and invest for retirement as a self-employed person, in addition to the basic protection provided by the OASI. However, this does assume that you accept the challenge and take care of your own financial security at an early stage.