The battle over major pension reform

Two deeply divided camps face off over sweeping reform of the old-age pension. If the bill fails to win support at referendum in the autumn, the first and second pillars face difficulties.

Federal Councillor Alain Berset could soon clinch “his” pension reform. Photo: Keystone

Will women soon have to work for longer? The reform provides for an increase in the pension age for women to 65 years of age. Photo: Keystone

The National Council and Council of States have been wrangling for two and a half years over the reform of old-age and survivors’ insurance (AHV) and occupational pension (BVG). They have been entrenched in their positions over key points for so long that a conference of conciliation between the two chambers was called last March.

The dispute centres on the seemingly insignificant issue of whether or not future pensioners should receive 70 Swiss francs more a month in AHV benefits. The comprehensive reform of AHV and the second pillar was finally passed by Parliament in March by the narrowest of majorities. In the National Council vote, the centre-left camp – made up of the Swiss Social Democratic Party (SP), the Greens, the Swiss Christian Democratic People’s Party (CVP) and the Swiss Conservative Democratic Party (BDP) – managed to secure the exact majority required of 101 votes for the pension increase. The support of the two Lega MPs and the seven Green Liberals ultimately got them over the line. The latter reluctantly approved the reform despite disagreeing with the pension increase. The Lega MPs, who are part of the Swiss People’s Party (SVP) parliamentary group, took the liberty of invoking their movement’s social policy programme which calls for an enhancement of AHV.

Social Affairs Minister Alain Berset (SP) now has the opportunity to go down in history as the Federal Councillor to bring about the first AHV reform since the 1990s while at the same time putting the second pillar on a more solid footing by lowering the conversion rate which determines the level of pension. In 2010, 72 % of the electorate rejected a conversion rate reduction. Berset has therefore pinned his hopes on a comprehensive and simultaneous reform of both pillars having a better chance of gaining the support of the Swiss people. The SP Federal Councillor from Fribourg is nevertheless not yet home and dry with his major initiative. On 24 September, the Swiss people and the cantons will decide on the increase to VAT which is linked to the bill. If voters reject the additional funding for AHV, the entire reform of the first and second pillars will fail.

Historic stress test for AHV

There is agreement on the need to renew the social institutions right across the political spectrum. The last AHV reform to successfully pass a referendum was that of the SP Federal Councillor Ruth Dreifuss in 1995. The number of pensioners and life expectancy have since increased further. AHV – Switzerland’s main social institution – is facing an historic stress test. The baby-boomer generation will enter retirement over the next 15 years. Around 6.5 people in employment financed one person of pension age when AHV was introduced in 1948, 3.4 working people cover the costs for one pensioner today and in 20 years from now the ratio will stand at 2 to 1. From the beginning of the next decade, AHV will have deficits running into billions each year and the AHV capital will be used up by 2030 unless the insurance scheme receives additional funding or relief through cost-cutting measures.

The proposed reform provides for both. The pension age for women is to be brought into line with that for men and raised to 65 years of age. AHV will also obtain additional annual income of around CHF 2 billion. In the second pillar, pension benefits will be brought into line with increased life expectancy. The conversion rate, which determines the pension amount, will be lowered. This will result in a 12 % reduction in pensions. However, Parliament has learned from the failed referendum on the conversion rate and agreed compensatory measures. But it is this issue of pension compensation that lies right at the heart of the dispute between the centre-left and the centre-right. The National Council majority – made up of the Free Democratic Party (FDP), Green Liberals (GLP) and SVP – wanted to completely make up for the pension reduction through higher savings contributions in the second pillar. However, the centre-left alliance ultimately triumphed. Under their proposal, future pensioners will receive an additional CHF 70 a month in AHV benefits and retired married couples will get a higher maximum pension.

The disadvantage of such a narrow majority

The wafer-thin parliamentary majority is not a good starting point for securing majority support from the electorate for pension reform. The rather unusual alliance of CVP, SP and the trade unions argues that it is a well-balanced bill which maintains the level of pensions while also putting the social institutions on a solid financial footing until 2030. The FDP, SVP, employer and trade associations, on the other hand, believe the increase in the AHV pension is irresponsible in view of the demographic trend. Future generations would have to pick up the bill. The pension increase wouldmore than eat up the savings from increasing the pension age for women. Opponents are also seeking to exploit the fact that existing pension recipients will come away empty-handed from the increase in AHV pensions. They are trying to score points with the catchphrase “two-class society” made up of the better-off future pensioners and the existing ones.

The left is not completely united over the pension reform either. In particular, the trade unions in French-speaking Switzerland reject the increase in the pension age for women. Some female trade unionists are even calling for a significant increase in pensions for women to make up for the gender pay gap on the labour market. However, the leaders of the SP and the Swiss Federation of Trade Unions are seeking to persuade their support base with the argument that the left has managed to wangle a substantial increase in AHV pensions out of the conservatives for the first time in decades.

Chance of reform remains

There is still a chance of securing approval for the reform at the ballot box. It is doubtful whether the FDP, SVP and business associations can form a strong enough opposition. Some FDP MPs in particular will find it hard to encourage the public to vote no. After all, if the reform should fail, it will be difficult to pass the required measures quickly enough to prevent AHV running up a deficit in view of the entrenched positions. The Swiss Trade Association cannot unanimously come out against the proposal because individual members, such as the Gastrosuisse and Hotelleriesuisse sector associations, support the reform. Some employer associations in French-speaking Switzerland also back the reform. It remains to be seen whether the SVP will go all out to thwart the bill as their supporters are often closer to left-wing positions on old-age pension than the hardline restructuring approach of their own party. The SVP party base played a significant role in ensuring that the reduction of the conversion rate failed at referendum in 2010.

The SVP is nevertheless now fighting alongside the FDP in Parliament for a bill that not only increases the pension age for women but also paves the way for setting the retirement age at 67. If the bill fails, the FDP and SVP will attempt to restructure the social institutions step-by-step. They will focus on increasing the pension age for women and a small rise in VAT. The conversion rate would then be reduced in a second bill with compensatory measures in the second pillar. As a third step, the right-wing parties will try to push through an increase in the retirement age to 67.

Concocted in a small group

On the other hand, a yes from the Swiss people and cantons would provide confirmation for the architects of the reform that the majority support of the Swiss people can only be secured if social equilibrium is provided for as well as austerity measures. An AHV increase of CHF 70 and the raising of the ceiling for the pension of married couples constitute such equilibrium. This plan was concocted on the Council of States’ Social Affairs Committee made up of Urs Schwaller (CVP, FR), Christine Egerszegi (FDP, AG), Verena Diener (GLP, ZH) and Paul Rechsteiner (SP, SG). This centre-left alliance got the compromise pension proposal through the Council of States in September 2015, shortly before the parliamentary elections. But three of its four architects did not stand again at the elections in October 2015. Only trade union leader Rechsteiner remained in office. This has made the debate in the National Council more difficult.

The fact that four veterans from the smaller chamber had concocted a pension reform between them which they saw as the final compromise was regarded by the larger chamber as a provocative step. The National Council, which shifted to the right at the election in October 2015, did not want to be presented with a done deal on one of the most significant reforms of recent decades.

Markus Brotschi is the federal political affairs editor for the “Tages-Anzeiger” and “Der Bund”

The key changes to old-age pension 2020

  • The pension age for women will increase by three months each year from 2018. From 2021, women will not receive a full pension until the age of 65.
  • The pension age will be made flexible. The reference age is 65, from which entitlement exists to a full pension from the first and second pillars. However, there is now the option of working beyond the official retirement age of 65 and increasing the pension to the maximum level with the AHV contributions. AHV contribution gaps can now also be made up, which was not previously possible.
  • AHV will receive additional funding: From 2018, the revenues from 0.3 percentage points of VAT will go to the AHV fund. An increase in VAT is not required for this as it concerns tax revenues that previously went to invalidity insurance. VAT will then be increased by 0.3 percentage points in 2021 to further shore up AHV.
  • People retiring from 2019 will receive extra AHV of CHF 70. The rise will increase the maximum AHV pension from CHF 2,350 today to CHF 2,420. Married couples can expect an increase of up to CHF 226 a month. This is due to the fact that the maximum pension for married couples will be 155 % of the maximum single pension in future. The pension increases should make up for some of the losses in the second pillar.
  • The increase in AHV pensions will be financed with an additional 0.3 percentage of wages, half of which will be contributed by employers and half by employees. However, this funding will only be sufficient until around 2030.
  • From 2019, the conversion rate will gradually be reduced from 6.8 % to 6 % for the mandatory occupational pension. This means that for CHF 100,000 of retirement assets, CHF 6,000 in annual pension will now be paid out instead of CHF 6,800 previously. However, the losses will partially be offset by a reduction in the coordination deduction. Pension scheme contributions will have to be paid on a higher proportion of salary in future. This means more capital will be saved.
  • A 20-year transitional generation will also be given a pension guarantee. Everyone aged 45 and over when the reform enters into force will receive a pension at the conversion rate of 6.8 % in the mandatory part of the occupational pension. However, 85 % of those insured have a pension fund with non-mandatory benefits provision which is why only a minority will effectively benefit from the pension guarantee.

What does the reform mean for the Swiss Abroad?

The Swiss Abroad with AHV insurance will also benefit from the CHF 70 increase in pensions and the higher benefits for married couples. There are also some changes to AHV in terms of provisions concerning contributions which will have an impact on the Swiss Abroad:

  • Children who accompany their parents abroad and are aged under five or who are born abroad can no longer obtain voluntary insurance. However, they can now include the prior insurance period of a parent when they become liable for contributions themselves (when they reach the age of 17 if in gainful employment or when they reach the age of 20 if they are not in gainful employment). Children do not suffer any disadvantages from the change up to this point as they have entitlement to invalidity insurance rehabilitation measures based on the Federal Act on Invalidity Insurance.
  • Family members (not in gainful employment) of people who work for federal government abroad and enjoy special rights and immunities (e.g. diplomats) are now automatically insured.
  • Employees working abroad for an employer with its head office in Switzerland now only need a prior insurance period of three years instead of five previously.
  • People not in gainful employment who accompany their spouses, who have AHV insurance, abroad must now continue the insurance and also provide evidence of three years of prior insurance (previously they were admitted to the insurance scheme without a prior insurance period). Spouses will now be treated equally, and people without a sufficient association with Switzerland will no longer be able to obtain AHV insurance.
  • Employees working for private aid organisations heavily subsidised by federal government in a non-contracting state now no longer have mandatory insurance. They can continue the insurance by providing evidence of a three-year prior insurance period.

AHV insurance generally remains voluntary for the Swiss Abroad. If they want AHV insurance, they must have had AHV insurance for at least five consecutive years at the time when they left Switzerland. In cases where insurance is being continued – such as employment with a Swiss employer abroad – a reduced prior insurance period of three years now applies. Contributions do not need to have been made during the prior insurance period. Insured status is nevertheless required. People living in an EU or EFTA state cannot be insured under AHV.

There are no specific changes for the Swiss Abroad under the second pillar. The same changes apply to them as to everyone residing in Switzerland with occupational pension provision. The principle that only income already insured under AHV can be insured in the second pillar continues to apply. The Swiss Abroad can only continue insurance under the second pillar if they also remain insured under AHV or have voluntary AHV insurance. If this is the case, they can either continue the insurance policy with the previous pension fund – providing it offers this – or continue insurance with the occupational pension contingency fund. It is not possible to join a second-pillar scheme abroad after a period of time if such insurance did not previously exist in Switzerland.

Comments (20)
  1. Newman Michèle Newman Michèle at 20.05.2017
    Pourrait-on m'expliquer ce qu'est le taux de conversion en termes simples, s.v.pl.?
    merci et cordialement
    1. Thomas Z. Thomas Z. at 22.05.2017
      @Michèle Newman: Ici une expliquation du 2ème pilier en general: https://www.youtube.com/watch?v=CgmhDuduDiI
  2. Já chegamos a casa está tudo bem beijinho nós estamos de férias Já chegamos a casa está tudo bem beijinho nós estamos de férias at 20.05.2017
    Le problema de la AVS il faut lê resudre avec une taxe sur toute lá robotization qui a envoye dês millers de saláries au chomage.ferreira Fernando .
  3. Gabriel Freiholz Gabriel Freiholz at 21.05.2017
    Tu vas te faire des amis dans le patronat! si non ce serait une bonne idée!
  4. G. Stokoe G. Stokoe at 21.05.2017
    Je conçois qu'il doit être extrêmement ardu & compliqué de régler de manière équitable la question des retraites. En tant que retraitée moi-même, je demande néanmoins instamment aux autorités, de quelque obédience politique qu'elles soient, de ne pas perdre de vue les intérêts des jeunes générations! Ce sont en effet elles qu'il faut protéger et accompagner dans les efforts qu'elles fournissent/qu'elles auront à fournir au quotidien.
    Alors un grand MERCI de penser aux jeunes générations d'ABORD.
  5. Michel Michel at 21.05.2017
    Peut-être qu'il serait temps de se rendre compte que l'équation
    Travail = revenu devient de plus en plus fausse. Le temps est bientôt là où cela sera complétement faux. Si l'on persiste dans cette direction, on va souffrir.
    Un humain faisant un certain travail contribue à la communauté par l'impôt. (tendance à la baisse)
    Une machine, elle ne le fait pas, vu qu'elle ne paie pas d'impôt.
    (Tendance à la hausse)
    C'est vrai que son AVS coûte moins cher pour une machine ou une usine. (quoique pas toujours, demandez donc le prix du démantèlement d'une usine nucléaire à un vert)
  6. Ernst  Ruetimann , Trang Ernst Ruetimann , Trang at 21.05.2017
    Die einmalige Erhoehung der Rente um CHF 70.- ist rechtlich nicht zu halten , da es dann einen zweiklassen AHV Bezueger gibt . Die regulaere Anpassung an die Teuerung sollte genuegen . Ausserdem sind diese 70 Fraenkli einen Tropfen auf den heissen Stein fuer die welche in der Schweiz leben muessen . Und wird dieser Betrag voll zugerechnet oder prozentual angepasst ? Ich habe eine um 21.5 % verkuerzte Rente .
    1. Thomas Z. Thomas Z. at 22.05.2017
      Für die Übergangsgeneration gibt es in der 2. Säule aber auch noch weitere Kompensationsmassnahmen, wie oben beschrieben (Senkung + Flexibilisierung d. Koordinationsabzugs, Zuschüsse aus dem Sicherheitsfonds BVG, höhere Sparbeiträge). Die teuerste Variante ist eindeutig, wenn es keine Reform gibt – dann würde die Umverteilung in der 2. Säule ungehindert weitergehen und zukünftige Reformen noch einschneidender werden.

      Zur Information: Ich bin Mitglied des ASIP-Redaktionsteams auf dringendereform.ch
    2. Renato Besomi Renato Besomi at 23.05.2017
      Es ist einfach nicht korrekt, das AHV und 2.Säule in einem Topf gebracht werden. Die AHV sollte für alle Bürger dieselben Leistungen erbringen und wird Finanziert durch alle Erwerbstätigen und Arbeitgeber. Die 2.Säule ist eigentlich Privates Sparen mit Beiträgen von Arbeitnehmer und Arbeitgeber. Wenn schon eine AHV Erhöhung, dann für alle ( und die liegt schon lange zurück). In anderen Länder wird die Altersrente jedes Jahr neu angepasst. Warum nicht in der Reichen Schweiz. Die Lebensunterhaltskosten und die Löhne steigen Jährlich nicht aber die Renten. Uebrigens könnten die Lohnprozente für die AHV erhöht werden. Früher verdienten die Leute nicht so viel wie heute und mussten Prozentual fast die gleichen Beiträge bezahlen.
  7. Ron Ron at 21.05.2017
    The whole AHV thing is a trap....
    1. JM JM at 21.05.2017
      How is this "AHV thing" a trap?
  8. Schera Silvia Pantheregrise sur overblog Schera Silvia Pantheregrise sur overblog at 22.05.2017
    Retraitée j'entends toujours le même refrain, on devient trop vieux, on coûte chère. C'est un manque de respect de nos dirigeants qui eux ont une retraite mensuel de plus de 10'000frs demandez leur de baisser leur retraite et même le salaire de plus de 30'000 frs mensuel. Leurs statistiques est faussée dès que l'on a un centenaire ça y est on devient tous centenaires par contre ne font pas les statistiques à l'envers des moins de 65 ans qui meurent d'AVC, crise cardiaque, cancer, accidents, suicides et aujourd'hui j'ai entendu que si on ne vote pas ce que nos dirigeants d'ailleurs eux-mêmes dirigés par les banques et les assurances on augmentera l'âge à 67 ans le même chantage lors des 64 ans. Par contre ce qu'ils ne disent pas c'est qu'à 40 ans les patrons nous trouvent trop vieux pour bosser et on nous fout dehors sous n'importe quel prétexte (je l'ai vécu) que les jeunes eux restent sur le pavé, que les caisses chômage, l'assurance invalidité les services sociaux vont virer au rouge, je ne suis pas universitaire comme ceux qu soi disant sont intelligents mais franchement ils nous prennent pour des débiles. Alors chers compatriotes laissez-vous gruger et les gagnants seront les plus riches qui vont encore gagner en disant on les a eu
    A bon entendeur
  9. Heinz Kuhne Heinz Kuhne at 22.05.2017
    I lived outside Switzerland since I was 5 years old , came back to Switzerland at the age of 21 , worked for 6 months and went back to the US, what will happen to me if I want to go back to Switzerland at the age of 65 and my pention from the States is not enough to survive in Switzerland ? Does the government has a solution for it, if not that means that people like me cant never go back to my country because I wont be able to afford staying there.I want it to pay AHV from abroad for a long time but I never get an answer from the AHV .
    1. Bertiz Benhamid Bertiz Benhamid at 04.06.2017
      My AHV account in Switzerland would not be high enough to move there. Social Security in the U.S. is not sufficient to make a living here. However, I am happy to receive a monthly check from both countries ( CH & U.S. ) and make the best of it.
      Had I not put my money into a Savings account long time ago,
      my situation would have turned out much different and perhaps not to my advantage. I give thanks to the Most High and Merciful for keeping an eye on me for 77 plus years.
  10. Antoine Antoine at 22.05.2017
    Si j'ai bien compris cette histoire de taux de conversion pour la part obligatoire du second pilier et pour la génération dite de transition : elle reste à 6,8%. Comme elle concerne les plus agés que 45 ans, les premiers à être concernés par les taux "bas" iront à la retraite dans 20 ans. Dans ces conditions, je ne comprends pas l'abaissement des taux à partir de 2019, quelqu'un peut-il m'expliquer ?
    1. Luder Daniel ancien gérant administrateur fondation LPP Luder Daniel ancien gérant administrateur fondation LPP at 23.05.2017
      Antoine, le taux de conversion est celui retenu pour convertir le capital retraite en rente à 65 ans.Il est fixé en fonction de l'espérance de vie et d'un taux d'intérêt. Ne pas confondre les retraites des caisses en primauté de prestations rente en % du salaire, où les cotisations sont insuffisantes dans toutes ces caisses publiques.Le contribuable doit renflouer par milliards ! Elles se sont laissé berner par les actuaires experts et syndicats qui ont vu dans une boule de cristal un taux d'intérêt de 3% sur 40 ans de cotisations et 25 ans de retraite. Aucun banquier n'aurai osé dire un taux fixe sur ces durées à ses clients et la surveillance a failli... Les assurés du privé, particulièrement au minimum LPP sont lésés par rapport à ces privilégiées, comme en France, et aussi les jeunes de ces caisses qui comblent le manque pour verser les rentes en cours, ce qui est anormal dans une système de capitalisation ou chacun doit couvrir sa retraite. Les prestations de libre passage lors d'un changement d'emploi sont réduites au ridicule minimum LPP, j'en suis moi-même victime, pire encore avant 1985 l'on nous a volé la part patronale. Alors nous dire que les nouveaux retraités recevront 70 CHF d'AVS de plus parce qu'il sont lésés relève d'une vison mensongère dédiée aux topinambours qui n'ont aucune connaissance. J'ai été gérant d'une fondation LPP, membre du conseil, diplômé en assurances, passé par l'actuariat et la banque.
  11. Win Win at 23.05.2017
    I worked in Switzerland for 15 years and went abroad to work in a private company. I'm planning to go back Switzerland and wish to avail the 2 year early retirement before the age of 65. My age now is 61, my question is the 2 years early retirement age for men will not be affected whatever the result of the referendum this coming autumn?
  12. Hans-jorg Kalt Hans-jorg Kalt at 28.05.2017
    Anhand der bevorstehenden zwei Klassengesellschaft die ja Herr Berset anstrebt werde ich wohl meine Eingabe ende dieses Jahres zum Vorbezug der AHV einreichen. Keine dieser angestrebten Lösungen bringt Frieden und Ruhe in das Sozialwesen. Mann/Frau Bundesbern erpresst uns, wen wir nicht zu Gunsten Ihrer Pläne ja sagen. Dann soll halt die AHV und PK mal in Schieflage geraten. Dann werte Damen und Herren Politiker, dann können sie einmal so richtig Geld in die Finger nehmen und die Kassen wieder mit unmengen Staatsgelder stabilisieren. Sie sind es ja gewöhnt, die Swissair, die Banken und die Holocoustgelder sind ja das beste Beispiel.
  13. Franz Stoll Franz Stoll at 23.06.2017
    Was ich da ueber eine Aussage von FDP Chefin Petra Goessi gehoert habe macht mich richtig wuetend, sie ist der Meinung dass es fuer AHV Auswanderer keine Zuschuesse geben solle wie in der Rentenreform feststeht die im September zur Abstimmung kommt da dieses Geld somit nicht der Schweiz zugute kaeme und sich diese AHV Bezueger nur ihren Ruhestand damit vergolden.
    Ich empfine dies empoerend und beschaehmend, der groessere Teil der im Ausland wohnenden AHV Bezueger waren ehemalige Gastarbeiter und haben die AHV verdient mit ihrer Arbeitsleistung haben sie nicht auch zuletzt auch ihren Teil zum Wohlstand fuer die Schweiz beigetragen und auch Steuern bezahlt.
    Und Schweizer die Auswandern aus welchen Gruenden immer haben das Anrecht zu leben wo es ihnen passt, viele dieser wuerden wenn sie in die Schweiz zurueck kehren sogar noch Ergaenzungsleistungen beantragen muessen da man ja in der lieben Schweiz heutzutage nur mit der AHV allein nicht existieren kann.
    Meine Antwort, gebt der FDP und SVP an den naechsten Abstimmungen die Quittung fuer ihre Haltung.
  14. Christian muehlemann Christian muehlemann at 03.07.2017
    Nach meiner meinung muesste auch ein neuerlicher beitritt zur freiwilligen AHV moeglich gemacht werden, da ja mit einer erhoehung der altersgrenze neue bedingungen geschaffen werden. So dass auslandschweizer fuer eine gewisse zeitspanne, die moeglichkeit haetten, ihren status in der freiwilligen AHV an die neue situation anzupassen.

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