Entrepreneurs risk lower pensions than employees
25 percent lower pension compared to employees with a collective agreement, that's how big the difference can be for entrepreneurs. If, as a self-employed person, you want a corresponding pension, you must put aside money yourself. Monica Zettervall, pension expert at the Swedish Pensions Agency, gives advise on how entrepreneurs can save for their pension.
As self-employed, you have to save on your own to compensate for the occupational pension that most employees receive.
- Employees with a collective agreement have 4.5-6 percent of their salary up to SEK 46,438 per month paid into their occupational pension by the employer. Between 30 and 31.5 percent is paid on income above that. As an entrepreneur, it can be a good benchmark to start from when you plan your savings for retirement, says Monica Zettervall, pension expert at the Swedish Pensions Agency.
The occupational pension is very important, but the largest part usually comes from the general pension.
- In order for you to receive the same public pension as if you were employed, those who have a limited company need to draw a salary and those who run a sole proprietorship need to have a surplus. There are two different pension contributions that together provide a general pension. These fees and taxes are included in the employer's and personal contribution as well as in the preliminary tax you pay to the Swedish Tax Agency, says Monica.
Different ways to save for retirement
There are several different ways to save for retirement for entrepreneurs.
- It is important to know that those who run a sole proprietorship, that is, have income from business activities, may indeed make deductions for private pension savings in their declaration to the Tax Agency. However, the deduction lowers your surplus, which is the basis for your state pension and many other social security benefits such as parental allowance and sickness allowance. Therefore, avoid making deductions for private pension savings in the declaration to the Tax Agency as long as you have a surplus that is lower than SEK 599,250 per year before tax in 2023, says Monica.
Continue to run the business after you start drawing your pension
Even if you have started drawing your pension, you can continue to run the company. From a certain age you receive an increased employment tax deduction for the elderly, which means that you pay less tax on your salary or surplus. At the age you receive the increased basic deduction, you also receive lower employer contributions and personal contributions and then only pay the old-age pension contribution, which is 10.21 percent. The increased basic deduction means lower tax on both salary, business income and pension.
Tips for entrepreneurs
- Employees with a collective agreement receive 4.5-6 percent of their salary up to SEK 46,438 per month paid into their occupational pension by the employer. Between 30 and 31.5 percent is paid on income above that. It can be a benchmark when you, as an entrepreneur, plan your savings.
- As an entrepreneur, you need to withdraw salary from your limited company or surplus in your sole proprietorship/trading company and pay fees and taxes to earn money for your public pension.
- Keep track of the fees. Regardless of which form of savings you choose, global equity index funds can be a good option for long-term savings for retirement. A low annual fee for global equity index funds on the Swedish market is 0.2 percent, you can take that as a benchmark.
- Consider continuing to run the company after 66. Even if you have started drawing your pension, you can continue to run the company. From a certain age you receive an increased employment tax deduction for the elderly, which means that you pay less tax on your salary or surplus. At the age you receive the increased basic deduction, you also receive lower employer contributions and personal contributions and then only pay the old-age pension contribution, which is 10.21 percent. The increased basic deduction means lower tax on both salary, business income and pension.
- Log in to My pages to get an idea of your future pension at different retirement ages. Based on that, you can decide whether you need and have the opportunity to save for your pension yourself.
Log in to My Pages at pensionsmyndigheten.se (in Swedish)