Insurance for the self-employed

Many workers are thinking of taking the step towards independence. While this shift is certainly very exciting, the changes relating to the new status are numerous and it is important to consider them as early as possible so as not to reduce your risk coverage, not to shorten your retirement and above all not to miss out on tax optimization opportunity.

"My retirement is my business", this is the argument that we very often hear when we have to advise a self-employed person who is banking on the sale of his activity for a longer term, expecting a capital gain. However, this projection is on the one hand in no way guaranteed, not to mention the tax imposed on transmission during the transition from commercial wealth to private wealth.

To minimize unpleasant surprises, it is wise to opt for foresight.

3^th pillar A? Affiliation to a pension fund that accepts self-employed people? We take a look at the basic points to which a freelancer must pay particular attention:

AVS /AI /APG : Affiliation is compulsory for self-employed workers. The chosen fund checks whether the activity meets the independence criteria and validates the status. Compensation funds take time to determine the contributions actually due over an accounting year, so sufficient reserves must be kept to pay the mandatory contributions retroactively. The contribution rate for the self-employed varies depending on the turnover achieved. Finally, if the self-employed person employs staff, he has the obligation to also join them and pay his contributions.

LPP : for independents, it is optional! But renouncing an affiliation deprives a self-employed person of covering themselves for death/disability risks and of building up comfortable retirement savings.

He can opt to join a professional association of which his branch of activity is a part and which has its own provident institution. Alternatively, opt for a pension fund that accepts self-employed people. It is appropriate to make a comparison between the different pension plans offered, their costs and the benefits provided.

If the self-employed person employs staff, he will be required to join them with the LPP for any income greater than CHF 22,050.- and provided that the employment contract is for a duration greater than three months.

Loss of gain: accident insurance is compulsory, including for staff. Please note, this coverage does not cover loss of earnings following an accident. To protect yourself from loss of income, you will need to consider private loss of earnings insurance. Loss of earnings insurance in the event of illness may also show some benefit.

 3^th Pillar A : optional and individual, with significant tax deductions

Independents can also opt for a 3^th pillar A. The maximum contribution amounts to CHF 7,056 for a self-employed person affiliated to a pension fund, deductible from taxable income. In the event of non-affiliation to the LPP, 20% of annual income can be contributed to 3^th pillar A up to CHF 35,280.- per year.

Some insurance companies also offer death and disability coverage backed by 3^th pillar A, which may be of certain interest to a self-employed person who is not affiliated with the LPP or who does not reach a sufficient income threshold justifying affiliation with a Provident Foundation of 2^e pillar.

In certain cantons, the 3rd^th pillar B (free pension provision) also shows certain tax advantages while offering disability and death coverage.

3^th pillar A? LPP or both?

 The solutions are numerous and it is sometimes difficult to make this choice. A self-employed worker whose annual income is less than CHF 176,000 can simply opt for a large 3 solution^th pillar A, since from an economic and fiscal point of view the contribution ceiling of CHF 35,280 is sufficient. If his annual income exceeds CHF 176,000, it would be more appropriate to optionally join the second pillar and accumulate a small 3^th pillar A with an annual contribution of CHF 7,056. This being remembered that even for the lowest incomes, a 2^e pillar offers the possibility of redeeming contribution gaps, which is not yet the case within the framework of a 3^e pillar A.

However, we will note that the big 3^th pillar A is appreciated for its flexibility, for the possibility it offers in the event of early withdrawal and for its cost.

To the choices offered by pension solutions, will be added the question of the status to adopt in the context of independent gainful activity: individual reason? Sàrl? HER?

In all cases it is preferable to take advice and our advisors are available to assess each situation and give the right advice, free from any conflict of interest.