3rd pillar and self-employed : The complete guide

Would you like to become self-employed, but don't really know what this means in terms of pension provision? It's true that in Switzerland, only membership of the AVS is compulsory for the self-employed. However, in order to have a substantial capital sum for retirement, it makes sense to also opt for individual provident insurance. Find out what the 3rd pillar can do for a self-employed person in this article.

In Switzerland, self-employed status is awarded to people who are self-employed, by the compensation fund. Steps to obtain the status must be taken as soon as you start working, as this enables you to benefit from AVS/AI coverage, which is none other than the 1st pillar of the Swiss pension system. The latter is compulsory and offers various benefits including old-age and survivors' insurance (AVS), disability insurance (AI) and loss-of-earnings allowances (APG). Nevertheless, the 1st pillar is not enough to ensure a comfortable standard of living when you reach retirement age.

The 2nd pillar concerns occupational pension provision (BVG), which is compulsory for salaried employees but not for the self-employed. However, if they want to build up retirement savings, they can also contribute to a 2nd pillar, on an optional basis. This can be a very interesting solution if the self-employed activity is going well. Unfortunately, the benefits offered by this type of provident scheme are still insufficient to ensure a comfortable retirement. That's why it's also possible to save in a 3rd pillar.

Individual pension provision - or 3rd pillar - offers multiple advantages for the self-employed. It enables them to put money aside for retirement throughout their working life. What's more, the 3rd pillar offers protection in the event of disability for the insured, as well as for his or her next of kin in the event of death. Last but not least, individual pension provision enables the self-employed to make great tax savings.For example, with a 3rd pillar 3A, it is possible to deduct up to 20% of net income from tax up to a limit of CHF 35,280 per year under Swiss regulations.

This is therefore a particularly interesting savings solution if the income generated by self-employment remains low, or even if sales start to increase. In such cases, it may make sense to open not only a 3rd pillar, but also a 2nd pillar to provide more attractive capital for your retirement.

There are two types of Swiss personal pension provision, which do not necessarily meet the same needs or objectives.

The linked 3rd pillar 3A allows the savings in the provident account to be withdrawn up to 5 years before retirement age or 5 years after, and early under certain conditions:

This pension contract offers attractive tax benefits given that payments can be deducted from taxes every year. On the other hand, it seems essential to specify that if the self-employed person has a 2nd pillar, he will be able to save the sum of 7,056 francs per year, and not the 20% of his income mentioned above, on his 3rd pillar.

Free pension provision, or 3rd pillar 3B, brings more flexibility and versatility. Indeed, payments into the account can be made freely, and savings can be withdrawn at any time, without any particular reason. Nevertheless, 3rd pillar 3B is, in general, less advantageous than 3rd pillar 3A in terms of tax deductions. Incidentally, these are governed by cantonal laws and therefore depend on the policyholder's place of residence. Free pension provision can only be taken out with an insurance company.

As you can see, the 3rd pillar for the self-employed is an effective pension solution for enjoying a serene and comfortable retirement, as well as its many advantages. While the 1st pillar remains compulsory, you are under no obligation to join an occupational pension scheme, but don't forget that it can still be profitable as a complement to the 3rd pillar. For more detailed information on this subject, please contact one of our experts.