On 25 September 2022, Swiss citizens will vote on the AHV 21 reform. The aim of this project is to ensure the financing of the AHV over the next ten years. In addition to the measures aiming to improve the finances of the pension system, the reform will introduce new rules to promote flexibility when retiring.
The need for a reform
The old-age insurance is financed through a contribution system. Accordingly, the contributions paid by the workforce in Switzerland are used to finance the benefits to which current retired people are entitled to. This system requires that a sufficiently large pool of insured persons contribute to fund the pensions that are being paid out.
However, due to the ageing of the Swiss population, the increase in life expectancy and the reversal of the population pyramid, the contribution system is put under pressure and a funding gap has steadily been increasing over the years. Faced with this issue, the Federal Council has adopted a stabilisation project with various measures to restore the financial balance of the AHV.
Increase of the ordinary retirement age for women
The first measure aims to harmonise the statutory retirement age between men and women. Accordingly, the retirement age for women would be raised from 64 to 65. This new reference age would apply to both the AHV and occupational pension. The alignment would be phased in gradually, so that the increase would be done by three-month increments per year following the passing of the reform. Assuming that this date is 2024, the retirement age for women will fully be 65 from 2028.
As women close to the current retirement age are particularly affected, compensatory measures will be put in place to mitigate the effects of the increase in the reference age. Women from the transitional generation – i.e. those aged 55 or beyond when the reform is passed – will receive a lifetime pension supplement. The supplement will be paid out even if the maximum statutory pension is exceeded. For women retiring early, the pension reduction rates will be set more favourably than for women who are not part of the transitional generation.
According to the current regulations, it is possible to bring forward the payment of the retirement pension by up to two years. However, the amount of the pension is reduced by 6.8% per year of anticipation. This mechanism is only possible for full years (12 months), as it is not possible to anticipate the payment of the pension in months. To put it differently, if a person reaches the age of 65 on 01.09.2024, they could only anticipate their pension by retiring on 01.09.2023 or 01.09.2022.
On the other hand, the payment of the pension may be postponed by up to five years. However, contributions paid after the retirement age do not make up for any pension gaps resulting from missing contribution years. Indeed, a fully AHV pension can only be paid out if a person has made uninterrupted contributions to the AHV from the age of 21 until the age of 65, i.e. a total of 44 years. If the contribution period is incomplete (for example, because the person has lived abroad for 10 years without contributing to the AHV), only a partial pension is paid out. For the purpose of this calculation, contributions paid after the statutory retirement age are not taken into account, and therefore do not allow for a full pension to be built up (however, a pension supplement is paid out for each year of postponement).
The AHV reform aims to give greater freedom of choice as to when the pension is paid out. Thus, the pension could be taken from any month between the ages of 63 to 70, for both men and women. Taking the previous example, it would be possible to anticipate the payment of the pension by retiring on 31.12.2023 since the anticipation in months would now be open. It should also be noted that it would be possible to anticipate or defer only part of the pension, allowing for partial retirement.
Finally, the reform makes it possible to take into account all AHV contributions paid after the statutory retirement age. Continuing to work after the age of 65 would therefore be encouraged, as it would be possible to compensate pension gaps for those who have not contributed during the full 44 years required to receive a full pension. Those who are already entitled to a full pension would only benefit from the pension supplement for each year during which the pension is postponed and would not benefit of any further improvements to their retirement pension.
Occupational pension legislation shares many common concepts with the AHV. Therefore, the AHV 21 reform will also bring about changes in the field of occupational pension, in order to maintain the cohesion and coordination of the two pillars.
Accordingly, the statutory retirement age will also be raised to 65 for women in the context of occupational pension. The new provisions on flexible retirement from the AHV reform will also be included as a mandatory minimum requirement. Pension funds would therefore have to offer to their insured persons the option to retire at 63 years old or to postpone their retirement to 70 years old. Insured individuals would also be entitled by law to claim a partial pension only.
In practice, many occupational pension schemes already offer such possibilities to their members. The reform will only impose a minimum standard which pension funds and employers will have to abide to, while more generous provisions remain possible.
To help finance the AHV, the normal Swiss VAT rate will be increased by 0.4 percentage points. A smaller increase to the reduced rate, which is applicable to basic consumer goods, is also planned. Finally, a small increase in the special VAT rate for accommodation services will be applied.
The new rates will be as follows :
ahv 21 rates
Changing the VAT rates requires to amend the Swiss Constitution and must therefore be subject to the vote of the Swiss people and Cantons. Because the VAT increase is linked to the AHV reform, it will only be implemented if the AHV reform is also approved by Swiss voters.