BVG reform. The changes that are needed.
Now that the AHV has been reformed, the federal government is looking to reform the BVG as well. On March 17, the proposed reform to employee benefits insurance passed the final vote in parliament. A popular ballot will be held in 2024. But what is the reform about and how would things change? Here's an overview.
Current status of the BVG reform
The pension component of employee benefits insurance has been under severe pressure for some time now. This is due firstly to Switzerland's aging population, and secondly to volatility in the financial markets. These two reasons – among many others – mean that reforming pensions is a matter of necessity because it is the only way to ensure sustainable financing of retirement provision. The AHV 21 reform constitutes a first step in restructuring Swiss pension funds. Politicians have now taken a further step with plans to reform the BVG. The aim is to safeguard pensions, boost financing, and improve the protection afforded to part-time workers while keeping 25 as the age at which citizens start paying into their pension pots. The latter also affects women in particular.
The proposed reform passed the final vote in parliament after several hard-fought rounds in the National Council and the Council of States. Since the criteria for a referendum have already been met, the Swiss people are expected to have their say on the proposal on March 4, 2024.
The BVG reform aims to introduce the following measures
Minimum conversion rate
The minimum conversion rate for mandatory benefits will be reduced from 6.8 to 6%. The following example explains what this means: If a person's pension fund capital is CHF 200,000, CHF 12,000 would now be paid out per year as a pension instead of CHF 13,600 as before.
Compensation measures
Some of the transitional generation will be financially compensated for the lower conversion rate for the first 15 years. The following aspects need to be borne in mind:
- If a person's retirement assets amount to CHF 220,050 or less, they will be entitled to the full supplement, i.e. CHF 200 per month.
- If a person's retirement assets are between CHF 220,500 and CHF 441,000, the supplement will be adjusted gradually and amount to between CHF 100 and 150 per month. The higher the credit balance, the lower the supplement.
- Individuals who have saved more than CHF 441,000 will not receive any compensation.
Retirement credits
A person's retirement assets consist in part of the annual retirement credits they pay in. For example, this currently amounts to 7% of the coordinated salary for men and women aged between 25 and 34, and 10% of the coordinated salary for 35- to 44-year-olds.
The new plan is to have people between the ages of 25 and 44 pay retirement credit of 9% on their BVG-deductible salary. From the age of 45, the retirement credit would then be 14%. This will significantly reduce the retirement credits for older workers in particular. For comparison: From the age of 55, 18% applies to men and women. This measure would significantly strengthen the position of older generations in the labor market.
Minimum income and coordination deduction
The minimum income required for enrollment in an employee benefits plan will be lowered from CHF 22,050 to 19,845 (as of 2023). According to the federal government, this means that an extra 70,000 or so people would now be insured.
The coordination deduction is the amount deducted from a person's gross salary. It determines the coordinated salary and amounts to CHF 25,725 (as of 2023). The coordination deduction is currently a fixed amount that is determined annually. The reform would see 80% of people's salary compulsorily insured.
These two measures will have the effect of improving pension provision for people on low incomes, including part-time workers and people with more than one job, for example, and women in particular.
The importance of private pension provision is growing
Regardless of any government policies, it's still extremely important for individuals to improve their retirement assets themselves: Making voluntary payments into tax-privileged Pillar 3a accounts, for example, is a well-known way for people to save for their own pension provision and take the future into their own hands. This approach is becoming increasingly popular. According to data from the Swiss Federal Statistical Office, around 60% of Swiss employees made regular or irregular contributions to a tied private pension plan in 2019. As a result, the Pillar 3a market has seen solid growth in recent years.
