Self-employed : Optimize your retirement with the 2nd pillar.

In 2023, 223,000 people had to rely on supplementary AVS benefits—a figure that highlights the crucial importance of a solid occupational pension plan. As a self-employed person, the 2nd Pillar represents a key opportunity to secure your financial future.

Indeed, as a self-employed individual, you can now voluntarily join a 2nd Pillar pension institution, enabling you to benefit from coverage comparable to that of an employee. Contributions are fully tax-deductible. Additionally, or as an alternative, you may contribute up to 20% of your AVS income into a 3rd Pillar A account—up to CHF 36'288 in 2025 if you are not affiliated with a 2nd Pillar institution.

This practical guide will help you understand and optimize your 2nd Pillar as a self-employed worker. We will review available affiliation options, strategies to maximize your contributions, and the key tax considerations for efficient retirement planning.

Understanding the 2nd Pillar for the Self-Employed

Unlike employees, self-employed individuals enjoy unique flexibility with their occupational pension plans. This distinct feature deserves special attention to optimize your social protection.

Who is eligible ?

As a self-employed person, you are not required to contribute to the 2nd Pillar. However, you can choose to join voluntarily to build retirement capital and protect against disability and death risks.

To be eligible, you must:

• Be insured under the 1st Pillar (AVS)
• Engage in recognized self-employment
• Earn an annual income over CHF 22'680

Affiliation Options

You have three main options to join the 2nd Pillar:

1. Via a professional association: Many professional associations offer collective pension schemes, often with extended benefits.
2. By creating your own pension institution: If you employ staff, you can create your own pension fund and join it as well.
3. Through the Substitute Occupational Benefit Institution: This national institution, managed on behalf of the Confederation, is open to all self-employed individuals, but only offers the legal minimum benefits.

How It Works

The system is based on several core principles:

You can deduct up to 50% of your contributions as the employer’s share from your operating income. The total amount of contributions is fully tax-deductible.

The 2nd Pillar provides coverage in three key areas:

• Retirement benefits
• Disability protection
• Survivor’s benefits

A notable advantage: the guaranteed technical interest rate on 2nd Pillar savings is generally more favorable than that of a tied 3rd Pillar account.

Choosing the Right Plan

Choosing the right occupational pension plan requires a thorough analysis to ensure peace of mind in retirement. Here are the key factors to consider:

Assess your pension needs

To maintain your standard of living in retirement, it's recommended to target around 60% of your last income. This amount typically includes both 1st and 2nd Pillar benefits. Therefore, evaluating your future needs accurately is essential.

Factors to consider: 

• Family situation and responsibilities
• Current savings capacity
• Retirement goals
• Risk tolerance

Compare pension institutions

Key criteria to evaluate:

Financial stability: Look at the funding ratio (as defined in Article 44 OPP2) which indicates the institution’s financial health.

Administrative fees: These include:

• General administration
• Marketing and advertising
• Brokerage fees
• Expert and auditor fees

Oversight authority charges

Benefit flexibility: Professional associations often provide extended plans with above-minimum coverage tailored to your needs.

Conversion rate: This rate determines your future pension and varies across institutions.

Ratio of active members to retirees: A balanced ratio implies better long-term financial stability.

Optimizing Your 2nd Pillar Contributions

A strategic approach to your contributions can significantly enhance your financial situation.

Plan your payments

Smart scheduling of contributions helps maximize tax benefits. For example, buying back missing contribution years is an effective way to fill pension gaps caused by:

• Salary fluctuations
• Work interruptions
• Career changes
• Divorce

For large amounts, spreading the buy-backs over several years is often more tax-efficient than a lump-sum payment. For example, spreading CHF 300'000 over three years could be more advantageous.

Leverage tax benefits

Tax benefits for the self-employed are especially attractive:

• 50% of contributions can be deducted as business expenses
• 100% of contributions are deductible from taxable income

Furthermore, if you are not affiliated with a pension fund, you may deduct up to 20% of your annual income under the 3rd Pillar, with a cap of CHF 36'288.

Business owners can also use company liquidity to fund buy-backs via dividend payments—effectively transferring funds into retirement savings without additional taxation.

Managing Your 2nd Pillar Efficiently

Regular monitoring of your 2nd Pillar ensures its long-term effectiveness. Key elements include:

Track your benefits

The minimum interest rate on retirement assets is a performance benchmark. As of 2024, it is set at 1.25%. However, institutions may offer higher rates based on financial performance.

For mandatory benefits, your annual pension equals 6.8% of the accumulated retirement assets. For instance, CHF 100'000 in assets yields CHF 6'800 in annual pension.

Each year, you receive a pension certificate detailing:

• Capital development
• Projected retirement benefits
• Disability and death benefits

Adapt your coverage

The 2nd Pillar’s flexibility allows for adjustments based on your professional situation:

Change your plan: From minimal legal coverage to extended benefits, plans can be adapted to your specific needs.

Plan your retirement: Since 2024, new flexibility options are available:

• Early retirement (from age 58)
• Deferred retirement
• Partial retirement

With early retirement, your pension is reduced proportionally. Conversely, postponement increases benefits.

Pay special attention to disability and survivor’s coverage:

• Disability pensions in case of income loss
• Survivor benefits: 60% of the deceased’s pension for the spouse and 20% for orphans

Some institutions also allow the surviving spouse to receive the actuarial equivalent of the pension as a lump sum.

Conclusion

The 2nd Pillar is arguably one of the most effective tools for securing your financial future as a self-employed person. It offers not only exceptional flexibility but also significant tax advantages.

Choosing the right institution and optimizing your contributions requires thoughtful planning, but the long-term benefits far outweigh the effort. Flexible coverage and retirement options allow you to adapt your plan as your career evolves.

The key to success lies in proactive management. By regularly monitoring your benefits and adjusting your contributions strategically, your 2nd Pillar can truly become a cornerstone of your financial security.