Your national retirement pension and occupational pensionThe page was last modified:
As an entrepreneur, in order to receive the same pension as if you were employed, you need to take out a salary or have a net profit and pay social security contributions and taxes to earn money for your public pension from the state. To compensate for the occupational pension that most employees have through their employers, you should also save about 4.5 % of your income.
The amount of pension you receive from the Swedish Pensions Agency depends on how much you have paid to the Swedish Tax Agency via taxes and social security contributions. Entrepreneurs must pay two different pension contributions – the retirement pension contribution, which corresponds to the social security contribution that employers pay for their employees, and the public pension contribution that wage earners pay through taxes.
Four pieces of advice for getting a better pension
Withdraw a salary or net profit
You earn money towards your public pension by paying taxes on your net profit or on the salary you withdraw.
As an entrepreneur, your public pension is based on the amount of money you have paid to the Swedish Tax Agency via taxes and fees.
If you are an entrepreneur, you do not receive the occupational pension that most employees receive. If you save about 4.5% of your income in long-term savings, this will correspond to the occupational pension most employers pay to their employees.
You are entitled to deductions
Entrepreneurs who do not have an occupational pension scheme can make tax deductions for their private pension savings.
Sole traders, trading partnerships or limited partnerships
When you run a sole trader, trading partnership or limited partnership, then your public pension is based on the declared net profit on which you pay taxes. The smaller the net profit on which you pay taxes, the less public pension money you will receive.
You pay a retirement pension contribution amounting to 10.21% of the net profit from your active business. The retirement pension contribution is part of the personal contributions you pay, which total of 28.97 % of the net profit. Like ordinary wage earners, you can write off the public pension contribution, which constitutes 7 % of the net profit on which you pay taxes.
When you run a limited company, you must withdraw a salary in order to receive a pension. Your public pension is based on the salary you receive and on which you pay taxes.
If you run a limited company, the company pays a retirement pension contribution totalling 10.21 % of your salary. The retirement pension contribution is part of the employer’s contribution amounting to 31.42 % of the salary, which the company pays to the Swedish Tax Agency. Like ordinary wage earners, you can write off the public pension contribution, which constitutes 7 % of the salary on which you pay taxes.
Maximise your public pension provision
To start earning a public pension, you must have an annual income of at least SEK 20,008 (2020). There is also an upper income ceiling for pension entitlement corresponding to a salary of SEK 44,892 per month (2020). If you can withdraw a salary or net profit, you will maximise your public pension.
Saving for your pension independently
In addition to a public pension, most employees receive an occupational pension from their employer. As an entrepreneur, you must compensate for the loss of the occupational pension by saving for your pension. A rule of thumb tends to be that you should save about 4.5 % of your salary. This corresponds to what most employers pay towards their employees’ occupational pensions.
Deductible savings for limited companies
Unlike ordinary wage earners, persons who run a limited company may deduct the payments they make into private pension savings accounts. You may deduct private pension savings amounting to up to 35 % of your salary on your income tax return. To make a deduction, you must be saving for your retirement in a pension insurance or pension savings account. The deduction cannot exceed a maximum of 10 Price Base Amounts, i.e., a maximum of SEK 473,000 (2020).
As usual, your company pays employer contributions on the entire salary, but you avoid paying income tax on the part that corresponds to the deduction, because the savings are deducted on your tax return.
Deductible savings for sole proprietorships
Unlike ordinary wage earners, those who receive income from an active business may deduct their private pension savings. You may deduct private pension savings amounting to up to 35 % of your income from the business. To make a deduction, you must be saving for your retirement in a pension insurance or pension savings account. The deduction cannot exceed a maximum of 10 Price Base Amounts, i.e., a maximum of SEK 473,000 (2020).
Private savings can lower your public pension
As a sole proprietor, if you deduct pension savings you will lower the net profit on which your public pension and many other social benefits are based. The reduction consists of the amount of pension savings plus the so called ‘special pay-roll tax’ of 24.26 % on the pension savings amount.
If you wish to maximise your earnings towards your public pension and have access to social benefits such as sickness benefits, you should avoid deducting private pension savings as long as your business’s net profits do not exceed approximately 43,000 per month (2020).
Frequently asked questions and answers
Responsible: Swedish Agency for Economic and Regional Growth