Retirement Planning for the Self-Employed in Switzerland: What You Need to Know

Retirement planning is a unique challenge (or opportunity?) for the self-employed in Switzerland, as they must organize everything themselves - unlike employees. This article offers a concise overview of the main differences, what to consider before starting your own business, and what you can do for your retirement while self-employed. Whether you are just thinking about becoming self-employed or are already running your own business, here you'll find the essential information for a secure financial future.

This article is for your if …

• You are or plan to be self-employed with a sole proprietorship, not employed by your own GmbH.

• You are already self-employed.

• You are considering quitting your job to become self-employed.

Table of Contents

• How Does Retirement Planning Differ for Employees vs. Self-Employed?
• What to Consider Before Starting Your Self-Employment
• Already Self-Employed? Here's What to Do for Your Retirement
• Conclusion & Recommendations

What Does Self-Employment Mean?

Many think that owning a business, such as a GmbH or AG, makes them self-employed. Not quite. True self-employment usually means operating a sole proprietorship. This means you are liable with your entire personal wealth (unless you have professional or business liability insurance) and your sole proprietorship income is taxed through your personal tax return. If you set up a GmbH or AG, you are considered an entrepreneur.

How Does Retirement Planning Differ for Employees vs. Self-Employed?

Starting self-employment involves several considerations. Beyond losing a regular income, you now need to manage your own financial security - for now and when you’re older. This has both advantages and disadvantages. Personally, I am a fan because it allows me to completely control my life and finances. However, this advantage only applies if you actually take control and take ownership. So, let’s get started!

The following visual on the Swiss pension system will help us understand the context:

The most important differences between employees and the self-employed are:

1. The 2nd Pillar Completely Disappears: Your 2nd pillar shifts from pension fund assets to a vested benefits account (“Freizügigkeitskonto”) or can be fully withdrawn. This means you won't receive any pensions! No old-age, disability, or survivors' pensions for your partner and children.
2. Higher Contributions to the 3rd Pillar: You can contribute up to 20% of your net income, but no more than CHF 35’000.- annually. This offers a full tax deduction, which can save you around 25% on your income tax (translating to about CHF 8’750.- savings on CHF 35’000.-). If invested through a bank solution, these 3a funds can be fully invested—assuming you have a long enough investment horizon (at least 10-15 years until withdrawal).
3. Premium Subsidies for Health Insurance: Depending on your income level, you might be eligible for health insurance premium subsidies from the SVA.

What to Consider Before Starting Your Self-Employment

In my experience, choosing the right time and strategy to start varies greatly on your personal situation and business plan. However, certain considerations are crucial regardless of your starting point:

1. Build a Fuck-Off-Fund of 12-24 Months: No matter what happens, having 12-24 months' worth of salary saved will give you the flexibility to navigate any situation. If your business doesn’t take off as planned, this financial cushion provides you with the time and resources to find an alternative path. It’s commonly said that it takes about three years to fully establish yourself—so be prepared for the long haul.    
2. Get Proper Insurance Coverage: This is where life insurance comes into play, specifically covering risks such as disability (due to accident or illness) and, if necessary, death. Personally, I’m not a fan of using life insurance as a savings product; the focus should be solely on risk coverage. In self-employment, securing your income in case of disability is non-negotiable. It’s crucial to insure the risk itself, not to save through these life insurance policies. Additionally, if others depend on you, a death benefit policy might also be necessary.

   Ideally, get a comprehensive financial planning analysis to determine what coverage you need. One key point: Always set up your life insurance policies within the 3a framework (tax-advantaged retirement savings in Switzerland).  

3. Start Small: Reduce Your Employment First: Before diving in headfirst, try reducing your hours at your current job and use that extra time to build your business. This way, you can test the waters without putting everything on the line. Because let’s face it—if you’re not ready to put in the hard work and long hours, then self-employment might not be the right fit for you. 

 In short: Plan carefully, protect yourself, and ease into the transition to set yourself up for success.

What to Do for Your Retirement Before Starting Self-Employment

When transitioning to self-employment, it’s crucial to understand how your social security and pension contributions will change. Here’s a breakdown of what you need to know:

1. Pillar (AHV/AVS):

As soon as you’re no longer employed or unemployed, you must register with the SVA as a self-employed person. To qualify, you’ll need at least three clients. If you have fewer than three clients, you won’t be officially recognized as self-employed under the first pillar system. However, you’ll still need to pay taxes on your income, and if you don’t contribute to the first pillar, you’ll create gaps in your pension record.

2. Pillar (BVG):

The Second Pillar no longer applies to you once you leave employment. However, you can transfer your accumulated contributions from your employer to a vested benefits account (“Freizügigkeitslösung”). Make sure to do this within 5 months of leaving your job, or the funds will be automatically transferred to a default institution.

From your vested benefits account, you can either withdraw the funds or invest them within the vested benefits solution to avoid losing value due to inflation. Keep in mind, you have one year to withdraw these funds after leaving your job.

Want to make sure you're not forgetting anything?!

Grab a copy of my FREE Self-Employment Starter Checklist! 👇🏼

3. Pillar (3a/3b)

The rules for the 3rd pillar are similar to those for vested benefits. Be aware, however, that using your 3a funds for self-employment is only permitted if you’re operating as a sole proprietorship (not a GmbH!).

Cashing out your vested benefits or 3a funds for your business comes with a significant risk: you might not have sufficient retirement income later. Consider this carefully and plan ahead how you’ll fill this gap. Taking responsibility for your future retirement is key!

4. Voluntary Pension Plan Contributions:

If your annual income exceeds CHF 22,050, you can voluntarily join a pension fund and benefit from the additional security it provides. Depending on your situation and age, this can be a smart move.

As an employed individual with a Second Pillar, you have a broader safety net in case of disability. Without it—or without disability insurance as a self-employed person—you’ll face significantly greater financial risks.

Already Self-Employed? Here’s What to Do for Your Retirement

If you're already self-employed and haven't yet addressed your retirement planning, it’s about time you do. I recommend conducting a professional retirement analysis to identify your current gaps. A financial planner like myself (or a financial advisor) can perform this analysis for you and suggest concrete steps to close your gaps. Depending on your age, voluntary pension fund contributions might make sense.

Conclusion & Recommendations

As you can see, retirement planning is just one piece of a larger puzzle. It closely ties into your business model and personal situation. Therefore, I recommend seeking comprehensive support from someone who understands your unique circumstances and the model of self-employment.