Retire at 65

The Swiss pension insurance system consists of three “columns”: basic pension (AVS / AHV), contributions paid by employees from a certain amount of income (LPP), and optional voluntary contributions based on individual pension schemes (more you can read about the structure of pensions in our article). At the same time, for several years now there has been a debate in the Confederation about the need to reform the basic pension insurance fund (AVS / AHV), from which deductions for the first “column” come.

The financial situation of AVS / AHV has been rapidly deteriorating for more than ten years, is specified on the website of the federal department of social insurance. In particular, since 2014, contributions have not been enough to finance current pensions. In 2019, the distribution deficit, that is, the difference between income and expenditure, was 1.17 billion francs. This problem is compounded as people born during the baby boom retire.

One way to stabilize AVS / AHV was additional funding of CHF 2 billion per year as part of the RFFA tax reform. The reorganization of the fund reduced the imbalance, but did not completely eliminate it – the deficit remains significant.

According to the Swiss government, changes in the pension system are inevitable. In July 2019, the Federal Council presented the main points of the new pension reform AVS 21, which is designed to preserve the level of pensions and ensure the financial balance of the fund. The reform envisages raising the retirement age for women to 65 years, as well as increasing the VAT by 0.7 percentage points. According to government calculations, raising the retirement age will mean that women will contribute about ten billion francs to the AVS / AHV fund within ten years after the law comes into force.

Currently, the bill is under consideration by the parliament, and the deputies have already reached a consensus on one of the issues. On Wednesday, the National Council voted 124 to 69 to raise the retirement age for women to 65. As a reminder, the Council of Cantons supported this proposal during the spring session.

Socialists, who remained in the minority, actively opposed this measure. In their opinion, it would be wiser to end unequal pay. So, if women and men received the same salary for their work, then the AVS / AHV fund would receive an additional 825 million francs per year, and there would be no need to raise the retirement age for women.

The implementation of the law will be accompanied by compensation payments for those generations of women who will be the first to suffer from the innovation. The amount of compensation is now being discussed by Swiss parliamentarians. The Federal Council estimates that the compensation measures should cost the Confederation 700 million francs. The Council of Cantons proposed to cut costs to 430 million, while the National Council was more generous and came close to the government’s proposal for a model costing 670 million francs. This project provides compensation ranging from 50 francs to 150 francs per month for women born between 1959 and 1964. The amount will depend on the salary: 150 francs for incomes below 57,360 francs per year, 100 francs for incomes above 57,360 francs and below 71,700 francs and 50 francs for incomes above this threshold.

In order to secure funding for AVS / AHV until 2030, the National Council intends to seek assistance from the National Bank (BNS / SNB), which should transfer profits from negative interest rates to the pension fund. With regard to VAT, the National Council has decided to increase the rate by 0.4 and the Council of Canthians by 0.3 percentage points.

Once the main differences between the chambers of parliament are resolved, the bill could be put to a referendum , since the planned increase in VAT requires a constitutional amendment, specifies SRF. Probably, the innovations will take effect no earlier than 2023.