It can be tricky to get to grips with the social security system in Switzerland. For a start, you have to get past all the abbreviations – AHV, IV, EO, ALV, UVG, KTG... What do all these letters mean?! If we’re going to have any chance of providing you with a clear overview, we’re going to have to start broad and break it down. You see, the Swiss social security system is divided into five areas:
- Old-age, survivors’ and disability insurance
- Protection against the consequences of illness and accidents
- Compensation for loss of earnings in case of service and maternity
- Unemployment insurance
- Family allowances
We’ve delved into each of these five areas and picked out the most important things you need to know.
Three-pillar pension system
The Swiss pension system is pretty complicated. You may have heard of AHV – old-age and survivors’ insurance – but that’s just one of three forms of financial support we can rely on when we reach a certain age. There are three pillars in total...
- Pillar 1 is the state pension provision, which is made up of old-age and survivors’ insurance (AHV), disability insurance (IV) and compensation for loss of earnings (EO). You can already start to see that the areas overlap. But let’s carry on... Pillar 1 is financed by the pay-as-you-go system, which means that contributions paid are used directly to cover pensions currently being drawn by other people. Pillar 1 is mandatory – even if you’re self-employed.
- As AHV is unlikely to cover your living costs in retirement, it is supplemented by Pillar 2 – occupational benefits insurance or the pension fund (PK). Contributions are deducted from an employee’s salary to build up a personal balance – tax-free. When you retire, you can choose to be paid in one lump sum or receive regular pension payments. Employees are automatically insured by the pension fund chosen by their employer, while PK is voluntary for anyone who is self-employed.
- Pillar 3 is the voluntary private pension provision. It’s an optional way of building up a bigger pot of money for retirement and saving on tax in the process. Payments can be deducted from your wages and therefore not counted as part of your taxable income. All you need to do is open a Pillar 3a account with your bank. You’re free to choose how much you contribute up to a maximum. If you exceed that threshold, you’ll be in trouble with the tax authorities. So you need to be aware that it changes every year. In 2022, the maximum amount for people without a pension fund is CHF 34,416, as long as you never exceed 20% of your income.
The AHV catch-22
If you leave an employed position to set up as self-employed, you’re supposed to register with your cantonal compensation office straight away. And yet you’ll need to fulfil certain conditions before they class you as self-employed. For example, you have to be able to prove that you already have several clients that you’re invoicing in your own name. One client isn’t enough, though, because the compensation office might start to suspect a case of false self-employment.
Basically, you have to have been working on a self-employed basis for a good few months before you can register with the compensation office. Just don’t leave it too long because you don’t want to end up with gaps in your contributions. You’ll find that most of your clients will be wanting you to confirm that you’ve registered as self-employed with the compensation office before too long anyway. It’s a classic catch-22 situation – you can’t register as self-employed without getting clients but you can’t get clients without registering as self-employed. But there’s no need to panic! You can always agree to a deadline with your first few clients, so they know you’ll be able to confirm that you’ve registered as self-employed by that point.
Top tip: It’s becoming easier and easier to get in touch with the compensation offices online. For example, users who are registered with WAS Luzern in the canton of Lucerne can order an excerpt from their individual AHK account to check if they have any contribution gaps. Most of the other cantons use AHVeasy as a personal portal, where registered users can go to order their annual AHV certificate – if you know where to look, that is. (We’ll give you a clue – it’s with your personal details...)
Illness and accidents
Health insurance is compulsory in Switzerland. The idea is to pay the necessary premiums to avoid being hit with extortionate bills for doctor’s fees and hospital treatment when you’re ill. It’s not quite the same with accident insurance, though. Employees are automatically insured for accidents through their employer but that cover only applies while they’re employed. So what happens when you start working on a self-employed basis? The obvious solution here is to take out additional accident insurance with your health insurance provider.
There’s not such a straightforward answer to the question of who pays your wages when you’re off sick as a self-employed person. Employees don’t have to worry about it at all. Their employer will keep paying them when they’re ill, having usually protected themselves by taking out daily sickness benefit insurance. But what about if you’re self-employed?
Of course, you can always take out your own daily sickness benefit insurance policy. We would recommend getting in touch with your preferred insurance provider for advice. Some factors that come into play here:
- How much do you earn? (If your income is low or varies considerably, it might be better to insure yourself for a fixed sum.)
- How old are you? (The older you are, the more difficult it’ll be.)
- Do you have any health issues? (You may find you have to pass a health check before you can take out this insurance.)
- After how many days should daily sickness benefits be paid out (grace period)?
- Which premium can you afford? And which premium do you want to pay for?
Check out a nice summary on this from Comparis.
Top tip: If you leave an employed position to start working on a self-employed basis, you have 30 days to switch from your employer’s group daily sickness benefit insurance policy to your own individual policy without having to pass a health check.
Compensation for loss of earnings
Self-employed people are also eligible for compensation for loss of earnings (EO) when they’re carrying out military or civilian service. You’ll be given an EO registration card once you’re enlisted, which you just need to send to your compensation office. And it’s as simple as that.
Mothers who have been covered by AHV for at least nine months prior to the birth of their baby are eligible for maternity allowance. Payments will start on the day the baby is born and will continue until the mother returns to work – up to a maximum of 14 weeks. You have to apply for this compensation by filling in the form online and submitting it directly.
You can find out more about compensation for loss of earnings on the AHV/IV website.
Family allowances
Parents are entitled to family allowance for children aged between 0 and 16 years old. After that, you can continue to receive support for children who are still in education and children who are unable to work due to health problems. This allowance is arranged through the cantonal compensation office. Employers are responsible for applying on behalf of their employees, but self-employed people have to contact their compensation office directly.
What are your thoughts on the system?
Have you had any experience of the Swiss social security system yourself? Perhaps you have some tips you can share with us?
Email us at freelance@apostrophgroup.ch – we’d love to hear from you!
