Occupational pension and third pillar: how self-employed people can save for retirement

1. Don’t rely on others for retirement income

Are you self-employed? If so, you can tweak your pension plan to fit your needs. Only contributions to the first pillar (the state pension, also known as OASI) are mandatory. 

This means you are spoilt for choice when it comes to your pension. Unfortunately, there is also the risk of neglecting retirement provision. An additional pension plan is necessary. OASI benefits alone are not enough to sustain yourself in old age. Our pension calculator helps you identify pension shortfalls early on.

Some self-employed people think of their company as a nest egg for retirement. When they retire, they want to sell the company. However, the success of the company may not continue into the future. 

If it no longer offers products that are in demand with customers, then the value of the company can plunge. In these fast-moving times, this can happen quickly. Small companies with few customers often have no value when the founder steps down.

2. Who is really considered self-employed?

Not everyone who runs their own company is self-employed. Is your company a PLC or LLC? Then everyone who works there is an employee, even if you run or own the company. 

Anyone who settles accounts with customers directly as a sole proprietor or a collective or limited partner is considered self-employed by the Social Insurance Institute (SVA). This is the only thing referred to as “self-employment” by the SVA.

3. Disability insurance and OASI for self-employed persons

The first pillar of pension provision also applies to the self-employed. This covers old age and survivors’ insurance (OASI), disability insurance (DI) and loss of earnings insurance (EO). Self-employed people are responsible for paying contributions themselves.

They do not pay unemployment insurance. However, they receive no coverage either. Self-employed people have many options when it comes to additional retirement benefits, both in the second and third pillars.

4. Second pillar: occupational pension for the self-employed

With the second pillar (occupational pension), you save for retirement. You can deduct your contributions from your taxable income. If you want to enrol in an occupational pension fund as a self-employed person, you will find a variety of options to choose from. 

This is what you can do as a self-employed person in the second pillar:

Set up a pension pot yourself

If you have employees, you do exactly what corporations like PLCs and LLCs do: you set up a pension fund for your employees (you usually you join a collective foundation, this is the easiest way.) As an owner, you can then also enrol in the same occupational pension fund.

Enrol in your professional body’s occupational pension fund

Self-employed persons who work alone can enrol in their professional body’s occupational pension fund. Professional associations with occupational pension funds are available for many professions. This includes liberal professions such as lawyers or doctors, as well as actors or journalists. Does your professional association not have a pot? There are also insurance companies that have set up a dedicated association.

Joining the Substitute Occupational Benefit Institution 

The Substitute Occupational Benefit Institution is a national pension pot instituted by the federal government. It is open to everyone. This solution is rather expensive for the services it offers.

Be careful when choosing a pension fund. The Substitute Occupational Benefit Institution is not the best option for most people. And not all professional associations have good occupational pension funds. Before you enrol in an occupational pension fund or set up a pension scheme yourself, it is best to get advice from a professional.

5. Third pillar: additional solutions for self-employed people

Self-employed people can also make provision for old age in the third pillar (private pension fund). Of their earned income, 20% can be paid into pillar 3a and deducted from their income – up to a maximum of 35,280 francs per year. This solution for the self-employed is often referred to as “big pillar 3a”. 

The prerequisite for big pillar 3a is that you do not have an occupational pension. So you can’t do both: pay more into the third pillar and also into an occupational pension fund. You have to decide.

As a self-employed person, you invest in the same products at banks or insurance companies as employees. Both solutions have their pros and cons. For more information, take a look at our article: Pillar 3a: bank or insurance company?

6. Occupational pension or third pillar?

You can save taxes equally well with both models for incomes up to 150,000 francs. If you earn more, then only the occupation pension offers the option of maximizing savings.

Both models are adequate when it comes to insurance. Insurance benefits are always included in the occupational pension fund. Many pillar 3a insurance options also include disability or family benefits. If you go to the bank with the third pillar, you can also insure yourself separately. However, this risk insurance is not tax-privileged.

If you want to save more than 20% of your income for old age, you will not find enough tax savings in pillar 3a. This can only be done in the occupational pension fund. Additional contributions can only be made into the occupational pension model, even retroactively. The third-pillar ceiling, on the other hand, is rigid and applies for each year. This means that you cannot pay into the fund at a later time.

Additional and back contributions are usually recommended for the self-employed. As a self-employed person, you often earn less than your colleagues with the same training for years in the start-up phase of your company. As a result, you save less during this time. If the company continues to go strong in the future, you should make up for the shortfall. This is particularly true if you have used pension money for capital to launch your business.

If you decide on a occupational pension fund solution, don’t forget the third pillar. Everyone can benefit from the third pillar – even self-employed people who pay into the occupational pension.