Guide to Swiss Pension Planning for Swiss Freelancers

Before examining the self-employed perspective, it helps to understand how the LPP works in its "standard" form for employees. This provides context for the differences freelancers encounter.

✔️ Eligibility Requirements

For employees in 2025, second-pillar coverage becomes mandatory when:

• The individual is already contributing to AVS through employment
• Annual salary exceeds CHF 22,680 (the entry threshold for 2025)
• The individual has reached age 17 for risk coverage (death and disability), or age 25 for retirement savings

Employers must affiliate with a pension fund and ensure their qualifying employees are enrolled. The employee has no choice in the matter—participation is automatic and mandatory.

✔️ The Coordination Deduction

A key concept in second-pillar mechanics is the coordination deduction. Because the first pillar already provides some retirement income, the second pillar is designed to insure only the portion of salary not already covered by AVS.

In 2025, the relevant thresholds are:

The coordinated salary—the amount actually subject to LPP contributions—is calculated by subtracting the coordination deduction from gross annual salary:

Coordinated salary = Annual gross salary − 26,460

For example, an employee earning CHF 85,000 annually would have a coordinated salary of CHF 58,540. An employee earning CHF 150,000 would be capped at the maximum coordinated salary of CHF 64,260 for mandatory coverage purposes (though many pension funds offer extra-mandatory coverage above this ceiling).

✔️ Age-Based Contribution Rates

Swiss pension law establishes minimum contribution rates that increase with age, reflecting the shorter investment horizon available to older workers. These retirement credits represent the savings portion of contributions:

These percentages apply to the coordinated salary. In addition to retirement credits, pension funds charge premiums for risk coverage (disability and death benefits) and administrative costs. Total contributions therefore exceed the retirement credit rates shown above.

For employees, the law requires employers to pay at least half of total contributions. Many employers voluntarily contribute more than the minimum, which represents a valuable component of overall compensation.

✔️ Calculating Retirement Benefits

At retirement, accumulated pension assets can be converted into a lifetime annuity using the conversion rate. For the mandatory portion of second-pillar assets, Swiss law prescribes a conversion rate of 6.8%.

The annual pension is calculated as:

Annual pension = Accumulated retirement assets × Conversion rate

An individual retiring with CHF 400,000 in mandatory LPP assets would receive:

400,000 × 6.8% = CHF 27,200 per year (approximately CHF 2,267 per month)

It's worth noting that many pension funds apply lower conversion rates to extra-mandatory assets, and there is ongoing political debate about reducing the statutory 6.8% rate for mandatory assets as well, given increased life expectancy and low interest rates.

This means a freelancer can legally operate with nothing but AVS coverage—but doing so typically results in a retirement income far below what would be needed to maintain one's standard of living, and leaves significant gaps in protection against disability and death.

✔️ Pathways to Second-Pillar Coverage

Self-employed individuals who wish to participate in the second pillar have several options:

✦ Professional association pension funds: Many professions maintain their own pension schemes. Doctors, lawyers, architects, engineers, pharmacists, and other regulated professions often have well-established funds that accept members practicing independently. These funds typically offer terms tailored to the profession's income patterns and career trajectories.

✦ Collective foundations for the self-employed: Various pension foundations specifically serve independent workers who don't belong to a professional association. These include the Substitute Occupational Benefit Institution (Stiftung Auffangeinrichtung BVG) and specialized providers like those offered by major insurance companies and banks.

✦ Employee pension fund affiliation: Freelancers who employ staff and must therefore maintain a pension fund for their employees can often insure themselves under the same scheme. This option provides administrative simplicity but requires having employees in the first place.

Each option comes with its own contribution structures, investment approaches, risk coverage provisions, and cost levels. Comparing multiple offers before committing is advisable.

✔️ Bearing Both Contribution Shares

A crucial practical difference for self-employed persons is that they must pay both the employer and employee portions of contributions. Where an employee might see a 7% deduction from salary matched by a 7% employer contribution (14% total), a freelancer pays the full 14% from their own resources.

This effectively doubles the visible cost of second-pillar participation compared to what employees see deducted from their paychecks. However, the full amount remains tax-deductible, and the self-employed person captures the full benefit of the accumulated savings.

✔️ Tax Implications

The tax treatment of voluntary LPP participation represents one of its most compelling features for freelancers:

✦ Income tax deductions: All contributions to a voluntary second-pillar scheme are fully deductible from taxable income, reducing both federal and cantonal/communal income taxes. For someone in a 35% marginal tax bracket, every CHF 10,000 contributed effectively costs only CHF 6,500 after tax savings.

✦ AVS contribution reduction: An often-overlooked benefit is that pension fund contributions reduce the income base used for calculating AVS contributions. Specifically, only half of pension fund contributions count as income subject to AVS. This creates additional savings of roughly 5% on the excluded amount.

✦ Buy-in opportunities: Individuals who join a pension fund later in their careers, or whose income has increased substantially, can often make large lump-sum "buy-in" contributions to fill gaps in their retirement accounts. These buy-ins are tax-deductible in the year made, creating significant planning opportunities for high earners.

For freelancers with substantial income, these tax benefits can make second-pillar participation financially attractive even before considering the retirement security aspect.