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Pension provision for the self-employed

Employees have it easy: their employer looks after their AHV and pension fund. This means a large part of an employee’s retirement provision is automatically taken care of. As a self-employed person, only AHV contributions are compulsory for you. It’s up to you to insure yourself against all other risks.

Before examining the matter further, you should confirm that you are recognised as a self-employed person in Switzerland’s social insurance system. If you are the owner of an AG or GmbH, then you are treated as one of your own employees and can insure yourself in their pension fund. You are also automatically insured against accidents.

You must pay AHV contributions yourself

 

If you are self-employed, you must pay all your AHV contributions yourself. It is important to do this without any interruption. The amount of these contributions depends on your salary and varies between 5.196% and 9.650%. This also includes the compulsory contribution for disability insurance (IV) and loss of earnings (EO).

 

The compensation office sometimes does not calculate the definitive amount of your AHV contributions for a given financial year until several years after the fact. The definitive amount is based on your final tax bill. If you have a very successful year, your subsequent AHV bill may be much higher than usual. So, always put aside enough money to cover your AHV contributions.

 

 

Tip: as a self-employed person you want as little income as possible to be taxed. However, make sure that your average salary does not fall below the AHV ceiling of CHF 85,320 (as at 2019). If this happens, you will not receive the maximum AHV pension later on. You will therefore need to carefully weigh up what is more important to you.

 

 

These insurances cover the most important risks

 

Self-employed persons are not automatically insured against accidents. And in the event of illness, your health insurance will only cover the costs of treatment. Risks such as incapacity to work or death have to be insured separately by the self-employed. With these insurances you’ll cover the most important risks:

 

UVG accident insurance: this insurance is not compulsory but is highly recommended. If you are self-employed and have an accident, this insurance pays for your loss of income and treatment costs (medical treatment, hospitalisation, etc.). In the event of death, your surviving dependants will receive a pension. Depending on the sector in which you work, you can take out this insurance with Suva or with a private insurance company. Private insurance usually provides you with better benefits. The daily allowance, for example, is 100%. For Suva it is only the legally prescribed 80%.

 

Daily sickness allowance: if you fall ill, your health insurance company will pay your treatment costs (minus excess and deductible), but not the loss of income. To insure yourself against the loss of income, you must conclude a daily sickness allowance insurance. This insurance pays 80% of your insured salary for up to two years. In the worst case, this daily allowance will bridge the time until you receive a disability pension (IV). However, you must be able to prove that you have actually lost your insured salary during your illness.

 

Incapacity to work pension: if you are unable to work due to illness or accident, you and your family will live on the money you receive from pillars 1 and 2 (if applicable). You can fill the gap through pillar 3. Incapacity to work insurance pays you an agreed pension if you fall ill or have an accident during the term of the contract. If you are only partially unable to work, the pension will be reduced accordingly.

 

Lump-sum death benefit: with this insurance, you protect your business partners and your company from financial problems in case you should die. If you should die during the term of the contract, the insurance company will pay out the agreed lump sum. The payout goes to the person registered in the policy as a beneficiary.

 

These insurances cover the most common risks. As a self-employed person you can, of course, insure other risks as well. The extent of your insurance will depend very much on your personal needs.

 

We at Generali offer the four products mentioned above.

 

 

Insuring yourself voluntarily in pillar 2

 

If you are self-employed, you do not have to join a pension fund. Insurance in pillar 2 is not compulsory. However, you can voluntarily join a pension fund if you earn at least CHF 21,330 a year (as at 2019). In pillar 2, you have to pay both the employee’s and employer’s contributions.

 

Insuring yourself voluntarily in pillar 2:

  • If your company has employees, you can join your employees’ pension fund. Whether this is permitted is specified in the regulations of the respective pension fund.
  • If you are a member of a professional association which has its own pension fund, you can join there.
  • If neither of the above applies, you can join the BVG Substitute Occupational Benefit Institution (Stiftung Auffangeinrichtung BVG) at www.chaeis.net. There you can insure yourself for the compulsory amount.

 

 

Tip: have you taken out management insurance with the pension fund for the managers of your company? Then, as the company owner you can also insure yourself. To do this, you do not need to be a member of the basic insurance under BVG. It is worth examining this option.

 

 

Independent and flexible with pillar 3a

 

If you are self-employed, you are only required to hold a few kinds of compulsory insurance. This means it’s all the more important that you analyse your situation in detail and obtain comprehensive advice. This will ensure you have made good provision for emergencies and old age.

 

For many self-employed people, pillar 3a is the perfect pension solution. With this private pension provision, you’ll be insured against all the necessary risks, have flexibility and will save taxes.

 

 

Tip: many self-employed people decide against a pension fund and opt instead for an individual solution using pillar 3a. Why? Pension funds insure you in the event of disability or death but cannot be adapted to personal needs. For example, as a single, childless person, you still pay contributions for a survivor’s pension. With private pension provision you have much more flexibility.

 

 

Step by step to retirement provision

 

Have you recently become self-employed? Then focus first of all on your new company. After the start-up phase, you can then plan the right pension plan step by step.

  • Before and during the start-up phase: don’t overstretch yourself at the beginning. It makes no sense to take out large loans while at the same time saving large amounts for old age. The first priority is to cover major risks such as death and disability. The best solution is a tailor-made risk insurance policy without a savings component. Also make sure that you pay in your AHV contributions without any gaps. Find out more about old-age pension provision so you can make the right decisions once you move on from the start-up phase.
  • After the start-up phase: as a self-employed person, you should now set up a private pension plan which allows you to save for old age and reduce your tax bill. Pay the maximum amount into your pillar 3a. If you want to save even more tax, you can buy into a pension fund. You can also deduct these amounts from your income.

 

 

Tip: if you are a self-employed person you want as little income as possible to be taxed. But, don’t forget that if your salary is low, you can also pay less into pillar 3a. Find the ideal balance.

More about the topic

How good is my retirement provision?

Will my pension be enough to live on later? Are there gaps in my retirement provision?

How do I close pension gaps through pillar 3a?

Which is better: pillar 3a with a bank or an insurance company? How do I save taxes?

How else can I provide for the future?

What do I have to watch out for with AHV? Is buying into my pension fund worth it?