Extra-mandatory pension scheme for self-employed individuals and business owners

Making the move to self-employment involves many changes, such as newly won freedoms, but also new regulations and opportunities for your own retirement planning. We will show you the options that are available to you now.

It is an obvious move for many doctors, lawyers, consultants and other service providers to become self-employed after years of working as an employee. Examples of this are taking over a medical practice or setting up your own consultancy company. This also puts new demands on your own pension planning. For example, it opens up the possibility of establishing a (self-administered) extra-mandatory pension scheme solution.

What is an extra-mandatory pension scheme?

The extra-mandatory pension scheme (commonly called executive pension scheme) supplements the mandatory pillar 2—the occupational pension scheme. It covers the additional pension requirements of employees or self-employed individuals. Extra-mandatory pension foundations are considered the greatest innovation in pension provision of the last 20 years and are widely used in Switzerland.

Sole proprietorship is the simplest and most common legal form for the transition to self-employment. However, you could always opt for a corporation (stock corporation (AG) or limited liability company (GmbH)) from the outset. This offers benefits such as differentiated liability at the company level for existing debt, despite the costs associated with its foundation and operation.

A trustee can support you in determining the legal form suited to your needs. However, changes in pension planning that go hand in hand with the change of employment status may go beyond a trustee’s expertise or consulting services. It would be worthwhile here to have a discussion with a pension solutions specialist, who can provide support on optimizing aspects of tax law and social benefits.

There are different options available for structuring pension planning, depending on whether the self-employment is set up as a sole proprietorship (with no staff) or a corporation (with virtual or actual collectivity). Essentially, everything revolves around three key components: insurance – savings – taxes.

Insurance—how can I personalize my pension fund?

As part of pension planning, it might be appropriate to draw up coordinated pension vehicles that take into account individual risk and savings benefits. The extra-mandatory pension scheme solution 1e, for example, is much more than a solid basic provision. Solutions can be coordinated to meet individual needs using tailored insurance parameters. This provides comprehensive coverage while securing your financial future at the same time.

Savings—how do I generate pension assets?

Efficient saving is and remains the cornerstone for accumulating pension assets. Savings can be optimized through targeted investment solutions that enable sustainable and long-term wealth planning.

For example, pillar 2, which is also known as a pension fund or occupational benefits scheme, promotes saving for old age while at the same time offering tax advantages. This is because pension assets that are in the pension cycle are not subject to wealth or income tax. The savings process is based on a fixed savings percentage (a monthly contribution of the insured salary). Voluntary purchases, the amount of which depends on the age of the insured individual, on the savings ratio and the insured salary can bolster the savings potential.

Tax optimization—how is pillar 2 taxed?

Every extra-mandatory pension scheme solution should include a strategy that minimizes the tax burden of an insured person. A customized solution can often create additional financial leeway, taking account of the legal and regulatory obligations. The pension cycle offers considerable optimization potential in all phases, whether in asset accumulation (e.g. purchases and after-tax returns), investments (no taxation on dividends or interest) and finally in withdrawing pension assets, where further optimization is possible depending on the tax domicile (staggering, withholding tax, etc.).

Executive pension scheme or pillar 3a—what is appropriate for self-employed individuals?

With pillar 3a, self-employed individuals can deduct the annual payments from their taxable income. The upper limit is 20% of the net annual income earned and maximum CHF 35,280 per annum, provided the person in question is not affiliated to an occupational pension scheme.

However, self-employed persons with an annual income of 180,000 or more and an extra-mandatory pension plan may be able to deduct more tax than on a pillar 3a with maximum contributions. An extra-mandatory pension scheme solution is therefore the more attractive alternative for self-employed individuals with a higher income.