AHV Contributions and Social Security in Switzerland: Essential insights for Self-Employed Professionals and Business Owners
What is the AHV?
Old-age and survivors' insurance (AHV) is a central pillar of the Swiss social security system. It aims to cover financial needs in old age or in the event of the death of a family member and is mandatory for all residents of Switzerland [Source: AHV].
AHV is based on solidarity between generations (intergenerational contract) and also between wealthier and economically weaker people. The active population finances current pensions. AHV's main sources of income are contributions from business, employers, insured persons and the federal government. The federal government covers a good 20% of AHV expenditure, financed by fiscal contributions and general federal funding. Since 1999, part of the value added tax has also been transferred to AHV. The AHV compensation fund serves as a reserve to cover expenditure fluctuations and should cover at least one annual expenditure of the AHV. At the end of 2022, the fund amounted to 47.0 billion Swiss francs [Source: BSV].
Contribution obligation and contribution rates
The contribution obligation for every Swiss resident begins on January 1 after the 17th birthday and ends with the cessation of employment, usually at the respective retirement age. The current contribution rates are:
- AHV (Old-Age and Survivors' Insurance): 8.7%
- IV (disability insurance): 1.4%
- EO (income compensation scheme): 0.5%
Half of the total contribution of 10.6% for employees is borne by the employer and employee.
Amount of AHV pension, pension entitlement and benefits
The amount of the AHV pension varies depending on individual contributions and is adjusted annually. In general, anyone who has paid AHV contributions for at least one year is entitled to AHV benefits. For a precise calculation, we can this AHV contribution calculator recommend.
Differences between AHV and pension fund
The AHV, a state pension scheme, is fundamentally different from the pension fund, which is part of the occupational pension scheme and is financed both by contributions from employers and employees. Both are part of the three-pillar pension system in Switzerland. Old-age and survivors' insurance (AHV) is the first pillar and serves primarily to secure a livelihood.
The pension fund, also known as occupational pensions or second pillar, is mandatory in Switzerland, but it is not state-owned. In contrast to the state AHV, which guarantees basic benefits, the pension fund is managed individually by private or public institutions. The pension fund aims to maintain the usual standard of living in old age and thus supplements AHV benefits (first pillar).
AHV benefits
AHV offers a wide range of benefits that go far beyond mere retirement pensions.
Old-age pensions — AHV old-age pensions help to enable insured persons to retire from working life in old age and to ensure a materially secure retirement.
Survivors' pensions — Survivors' pensions are intended to prevent a financial emergency from being added to the human suffering that the death of a parent or spouse brings to the family.
Helpless compensation — Pensioners who depend on help in everyday life are entitled to helpless compensation in addition to their pension. This is granted independently of income and assets and is used to support everyday tasks.
Other support services — The AHV also finances a range of aids for retirees that are needed for movement, contact or self-care, such as prostheses, hearing aids or orthopaedic shoes.
AHV for self-employed people and entrepreneurs
AHV contribution requirement
Self-employed people in Switzerland are required to pay AHV contributions. In contrast to employees, they must pay the entire contribution themselves.
Instead of high wages, self-employed people therefore often only pay themselves an average wage in the respective sector, and also transfer the capital generated by their company to private ownership through dividends. There are tax deductions for dividend payments as long as the shareholder holds at least 10% of the company's shares.
Registration for the AHV compensation fund
Registration for AHV takes place at the start of self-employment. It is important not to neglect this step as it is fundamental for subsequent pension rights. Registration with the Swiss Compensation Fund can be submitted via AHVeasy Portal be carried out. Here, the company and all employee master data can be recorded and continuously adjusted.
Further social security obligations for self-employed persons
In addition to the main pension and survivors' insurance (8.7% of payroll), self-employed persons and employers in Switzerland must pay further social security contributions, namely:
- disability insurance contributions (IV),
- income compensation code (EO),
- unemployment insurance (ALV),
- Family Compensation Fund (FAK),
- as well as voluntary insurance such as accident, health and long-term care insurance.
Calculation of contributions and payment of AHV contributions
Contributions are calculated on the basis of payroll. A fixed percentage of the salary (currently 10.6%) is paid into the compensation fund. By the way, this is also the main reason why entrepreneurs often do not pay out above-average wages.
AHV contributions must be paid quarterly or monthly (for payrolls above 200,000 CHF). Late payments are subject to default interest of 5% per year, while compensation interest is granted in case of overpayments.
Here is a sample monthly calculation from the compensation fund in Zug, for a company that pays out a monthly payroll of 25,138 CHF:
Tips for self-employed people
As a self-employed person in Switzerland, it is important to be well informed about the AHV and the associated obligations and rights and to register in a timely manner. Timely and correct registration for AHV avoids complications and possible back payments.