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On 1 January 2024, the state pension reform in Switzerland came into force. This signalled important changes for insured persons. The Swiss pension system is based on 3 pillars –  Pillar I is the state pension (AHV) – Pillar II is the occupational pension plan (BVG) and the third Pillar is a private pension provision (pillars 3a and 3b).

The changes included standardising the reference or retirement age of 65 for both women and men as well introducing flexible retirement from the age of 63. Below, we take a look at the main points.

 

1. Tax-free allowance for employees over 64 for women and 65 for men

  • Those working beyond the reference age, can now have their AHV contributions taken into account.
  • The new law means that under certain conditions, it will now be possible to make up for gaps in contributions and increase the retirement pension (up to the maximum pension amount).
  • For this reason, employees who have reached the reference age, can decide for themselves whether to waive the allowance of CHF 1’400 per month.

2. Waiver of tax-free allowance after 64 for women and 65 for men possible

  • Those wishing to waive the allowance, must inform their employer before the first salary payment after reaching the reference age.
  • Once the first salary payment has been made, it will no longer possible to waive the allowance retroactively.
    • If no other notification is made before the first salary payment in the following year, the regulation regarding the tax-free allowance continues to apply.
    • The regulation also applies to subsequent payments made in the year in question (realisation principle).
    • All employers are requested to inform employees who are about to retire or are already of retirement age about this possibility.

3. Increasing the pension through AHV contributions

  • This can be done after the age of 64 for women and 65 for men and under certain conditions is an interesting offer – especially in view of the shortage of employees.

4. Reference age 65 for women and men

  • For women, the retirement age increases gradually from 64 to the reference age of 65, by 3 months per year. And it affects women born in 1960, 1961, 1962, 1963, 1964 and younger

Finally, and regarding AHV – the Swiss will go back to the polls on 3 March 2024  to decide whether to push the retirement age back to 66 years of age for all

If accepted, Switzerland will follow the trend seen in the countries of the OECD, where the average retirement age is set gradually to increase to 65.7 for women and 66.1 for men by 2060.

 

 

In addition to the AHV reform, there is also a planned reform to the second Pillar or BVG

It is widely agreed that the AHV and BVG cover only around 60-70% of previous income after retirement. The Pillar 3 is designed as a “top up” to enable workers to reach the same or similar standard as when they were employed.

There are reforms planned in the Pillar 2 this year and this will go to a national referendum in spring 2024

Pillar 2 pension proposed changes:

  • Remove the Coordination salary discount, so that insured salary starts from near zero and not from around CHF25’000 per annum.
  • Change the current 4-5 decades of incrementing pension contributions as one gets older, to just two levels.
  • This increases the premiums below 45 and decreases them above 45 years, making the net savings on retirement the same but reducing the burden on employers for older people – making them more attractive.
  • And of course a drop in the BVG conversion rate from 6.8 to 6%, still with no index linking.

This will affect companies which also pay into the Pillar 2 and adjustments to their pension fund will need to be made. In addition, the entry threshold for the pension fund is to fall from CHF22’050 to CHF 9’845. Employees who work part-time or have a low income would benefit from this measure. For companies, this means if more employees are insured, pension costs will rise. There are other considerations around pillar 2 and we will cover these in a separate post.

 

In Summary
The Swiss pension system is made up of 3 pillars and was originally designed to offer the insured worker the same quality of life after they stop work, in retirement. Due to a multitude of reasons, reform is required and like most OECD countries the age of retirement is being changed (AHV) as are the conditions for payment into the private pillar 2 pension. The first AHV reforms have taken place as of 01 January 2024 and further proposed changes to the Pillar 1 and 2 are planned for later this year.

 

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