SME

Occupational pension provision – what this means for employers and the self-employed

The occupational benefit scheme is intended to enable insured persons to continue their previous lifestyle after leaving employment. How does the second pillar work? Who is subject to the LOB obligation? What are the shares of employees and employers? What occupational benefit options are there for self-employed persons? In this blog post, we look at occupational pension provision from the perspective of employers and sole traders.

Payroll accounting deals with the accounting recording of wages and personnel expenses. Payroll accounting not only includes payroll accounting, managing the personnel master data and keeping the individual payroll accounts of all employees but also determining and paying social contributions. In the following, we take a closer look at the second pillar of occupational pension provision.

Reading Tip: In this blog post, you will find answers to the most important questions about social contributions and deductions in payroll accounting.

How occupational benefit schemes work in Switzerland

What is the second pillar? In Switzerland, the occupational pension provision was incorporated into the constitution in 1972. The second pillar – in addition to old age and survivors’ insurance (AHV), disability insurance (IV) and supplementary benefits (EL) as the first pillar – has the task of enabling insured persons to continue their previous standard of living in an appropriate manner. Their goal is to achieve a pension income of around 60 per cent of the last salary together with the first pillar. The Federal Law on Occupational Retirement, Survivors and Disability Pension Plans (BVG) define minimum benefits for old age, death, and disability.

How does the second pillar work? The second pillar of pension provision is based on an individual savings process that ends when the retirement age is reached. The retirement assets saved in the insured person’s account over the years serve to finance the retirement pension. The retirement credit is financed jointly by the employee and the employer and is credited annually to the retirement account of the insured person. The compulsory occupational benefit scheme ends when the statutory AHV age of 64 is reached for women and 65 for men. The existing capital is converted into the annual retirement pension using a conversion factor of 6.8 per cent.

As an employer, you need to know the following about occupational pension provision

Who is liable for BVG? The BVG compulsory insurance applies to all employed persons who are already insured under the first pillar and earn at least CHF 21,510 per year. Compulsory insurance begins when the employment relationship commences, at the earliest when the employee reaches the age of 17. Up to the age of 24, the contributions only cover the risks of “death and disability”. From the age of 25, the savings portion for the old-age pension is also added.

A person who is employed by an employer and receives a salary is considered to be gainfully employed. In most cases, this also includes freelancers. If you as an entrepreneur employ one or more employees, you have to pay social security contributions. In the case of insignificant remuneration of up to CHF 2,300 per year, you only have to pay the contributions at the request of the person liable to pay contributions. Employees with a fixed-term employment contract of no more than three months are exempt from the compulsory BVG. According to the Federal Social Insurance Office, the employer’s contribution must be “at least equal to the total contributions of all their employees” As with the AHV, employers owe the entire contributions. This means that companies pay their share as well as that of the employees, which they deduct from their wages.

How high is the BVG share of employers?

In the case of a limited liability company, managing entrepreneurs are also considered to be employed and are therefore subject to the LOB obligation. Employers of an AG are also employees and therefore subject to compulsory BVG insurance. Employers owe the full BVG contribution to each employee as described above. The employer’s share must be equal to or greater than that which your company deducts directly from the employee’s salary. The amount of the BVG deductions depends on the salary, age, and pension plan.

What are the BVG contributions based on? To determine the BVG contributions, first calculate the complete gross salary per employee. The OASI annual salary is decisive for the calculation of the insured salary in the second pillar. Monthly salary, hourly wage, holiday pay and 13th month’s salary. The monthly salary is subject to BVG contributions. Employers may exclude occasional salary components such as overtime compensation or loyalty bonuses. Daily sickness and accident benefits are not subject to BVG.

Attention: Wage statements are documents in the criminal law sense. Wage statements that are intentionally or unknowingly filled out incorrectly can constitute a forgery of documents. Fully automated accounting systems help you create wage statements, simplify your payroll accounting, and have the lowest error rate.

What do sole traders have to bear in mind when it comes to occupational pension provision?

Persons who are self-employed under social insurance law are those who “work under their name and for their account, are in an independent position and bear their own economic risk”, writes the OASI-IV in a leaflet dated January 2022. Founders of sole proprietorships are usually considered self-employed and are therefore largely responsible for their insurance. They are not insured against unemployment and joining a pension fund is voluntary. As a self-employed person, you can take out insurance with the pension fund of your professional association. In Switzerland, numerous professional or trade associations offer the option of taking out insurance with pension funds set up specifically for them.

Occupational pension provision – whether for your employees or you as a sole trader – should not be neglected at any stage of your life. However, this does not necessarily mean that the effort for this should get out of hand. Would you like to know how you can do your payroll accounting in just a few minutes a week? Book a free demo of the Swiss accounting solution Accounto here.