ZUS contributions for the self-employed - a pension trap?

Preferential ZUS contributions for the self-employed - a privilege or a threat?

People running a sole proprietorship (JDG) in Poland benefit from special rules on social insurance contributions. The contribution base is just 60% of the projected average monthly salary for a given year, which in practice means that contributions can be disproportionately low compared with the entrepreneur's actual income.

Many self-employed people see this mechanism as an advantage of running their own business. Lower contribution burdens mean more funds for growing the company, investing or day-to-day spending. However, as Professor Marek Góra - an economist at the Warsaw School of Economics (SGH) and co-creator of the Polish pension system - warns, this view is superficial and dangerous in the long term.

The problem concerns above all the distinction between the different types of contributions. They do not all have the same economic and legal nature, and treating them together - as a single burden "paid to ZUS" - leads to fundamental misunderstandings. Understanding this difference is crucial for every business owner planning their financial future.

In addition, the practice of artificially pushing employees into self-employment still exists in the Polish economy, creating a legal fiction that harms both those concerned and the whole social insurance system.

A pension contribution is savings, not a tax

The key to understanding the problem of low contributions for the self-employed is to correctly distinguish the nature of the individual social insurance contributions. Sickness, accident and disability contributions are similar in nature to a fee for access to social benefits and public services. If society decides to subsidise the cost of these services for the self-employed through lower contributions, that is a decision about the "here and now".

The situation is completely different with the pension contribution. It is savings in nature - it shifts part of today's income to fund consumption in old age. It is not a quasi-tax or a levy, although many business owners still see it that way. That understanding was partly justified under the old pension system, abolished in 1999, but today it is entirely wrong.

One of the foundations of the current pension system is precisely the separation of the pension contribution and giving it the clear character of individual savings. The funds accumulated create obligations towards savers, and their growth results from GDP growth - similarly to long-term government bonds. Decisions taken today on the level of these contributions will have irreversible consequences in several decades.

Why are low contributions a pension trap?

The mechanism of the trap is simple, but its consequences are dramatic. Rules allowing the self-employed to lawfully reduce their pension contributions to a minimum level mean that, throughout their working years, they set aside for their future pension amounts that are completely inadequate relative to their actual earnings.

The effects of this mechanism include:

• Drastically low pensions - after finishing their working life, the self-employed receive benefits that do not allow a decent standard of living
• Pressure on the state budget - people with low pensions expect top-ups financed by successive generations of working people
• The illusion of savings - entrepreneurs see lower contributions as a gain, while in reality they are robbing their future selves
• A growing social problem - as the self-employed population ages, the scale of pension poverty will grow
• A false sense of security - the belief that "I will save for myself" does not, in the vast majority of cases, work in practice

Experience from many countries and detailed academic research leave no doubt - for the vast majority of the self-employed, lower pension contributions are a road leading straight to poverty in old age. As Professor Góra points out, stories about independently accumulating sufficient funds to finance one's own old age should be "dismissed as fairy tales".

What solution do experts propose?

In Professor Góra's view, pension contributions must be treated separately from other social insurance contributions in any changes to the rules for the self-employed. The demand is clear: pension contributions should be uniform for everyone, regardless of the legal form in which income is earned, and should relate to actual income.

This solution is used successfully in, among others, Sweden, where the level of contributions is functionally linked to the general tax system. Importantly, this is not about seeking additional revenue for the state budget. Market interventions through increasing or reducing burdens should take place within the tax system, without mixing the social insurance system into it.

At the same time, experts stress that participation in the general pension system does not rule out additional saving. Those who can afford it should use programmes such as IKE, IKZE or PPE - but as a supplement, not a substitute for full participation in the general system. A clear separation of the functions of the individual contributions would also help to spread knowledge about how the pension system works among business owners.

What does this mean in practice for business owners?

For people running a sole proprietorship (JDG), the above analysis brings several important conclusions. First, it is worth abandoning the idea of the pension contribution as a cost - it is an investment in your own future. Second, even under the current rules, nothing prevents you from voluntarily paying higher pension contributions or using additional forms of saving for old age.

Legal risk cannot be ignored either. Planned legislative changes may in future require the self-employed to pay pension contributions on their actual income. Business owners who factor this prospect into their financial planning now will avoid unpleasant surprises.

It is also worth remembering the issue of sham self-employment. People who actually perform subordinate work but only formally run a business expose themselves to serious legal consequences - both from the Social Insurance Institution (ZUS) and from the tax authorities. Reclassification of the legal relationship may mean having to pay arrears of contributions together with interest.

Plan your future with the help of specialists

The issue of ZUS contributions, tax optimisation and pension security requires individual legal analysis. Every situation is different - the income profile, the form of business and the time horizon all vary. Making decisions without consulting a lawyer can lead to costly mistakes, the effects of which we will feel only decades from now.

Contact our firm to discuss your contribution and pension situation. We will help you choose legal solutions that secure your financial future without hampering the growth of your business. Do not wait - the sooner you start acting, the better the pension you will secure for yourself.