Self-employed: Do the benefits of your pension fund meet your expectations?
If you are self-employed, you have the possibility of taking out optional insurance to boost your retirement savings and protect yourself against the risks of invalidity and death. Various options exist for the self-employed and freelancers. But what should you consider when evaluating a pension fund’s benefits? That depends on what you want to achieve with your pension plan. Generally, the key elements to watch out for are:
First of all, you should check the amount of the insured salary under the second pillar and whether there is an upper limit. If, for instance, your annual salary is CHF 100,000, but the insured salary is only CHF 86,04011, this probably means that only the legal minimum defined by the Federal Act on Occupational Old Age, Survivors’ and Invalidity Pension Provision (OPA) applies. However, if the insured salary is identical to the reported salary, you are in a better position to build up capital for your retirement or in the event of invalidity or death.
Mandatory vs voluntary benefits
You can also choose to make voluntary contributions. In this case, the income above CHF 86,04011 per year will not be covered by statutory provisions but will be insured under an additional pension fund plan. As a result, the total capital in your second pillar will be higher and therefore lead to a higher pension at retirement compared with mandatory OPA benefits2.
Solid financial management
Pension funds must always guarantee that they can meet their obligations (apart from a few special cases). This is referred to as the funding ratio. If this ratio is 100% or higher, the financial situation of the pension fund is sound. If not, restructuring measures need to be taken. This could result in a lower return than the statutory minimum rate set out in the OPA2, or in additional contributions from both employers and employees to cover the shortfall. However, a funding ratio of 100% alone is not enough. The pension fund must also build up sufficient reserves in order to be able to cope with possible negative annual results due to investment fluctuations.
Assessing a pension fund is not easy, and expert advice may be required. The experts of BCGE’s Wealth and Pension Planning Unit can help entrepreneurs assess their own pension fund and help them find ways to optimise it according to their personal objectives and their specific situation.
1Upper limit for the mandatory portion according to the OPA for the year 2022
2Conversion rate in 2022: 6.8%