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. A referendum has already been called and is likely to be held in summer/fall 2024.
The BVG reform aims to introduce the following measures
Reduction in the 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 for the transitional generation
Following the entry into force of the reform, some of the transitional generation in the first 15 cohorts will be financially compensated for the lower conversion rate. The following aspects need to be borne in mind:
- If a person's retirement assets amount to CHF 220,500 or less, they will be entitled to the full supplement. In the first five years, this supplement is CHF 200 per month. In the following five years, it is CHF 150, and in the last five years CHF 100 per month. This will apply to approximately one-fourth of the insured persons in the transitional generation.
- If a person's retirement assets are between CHF 220,500 and CHF 441,000, the supplement paid will be reduced incrementally. The precise format of this provision still has to decided. It is expected to apply to just under half of all insured persons.
- Individuals who have saved more than CHF 441,000 will not receive any compensation.
Simplification of 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. Between the ages of 45 and 65, the retirement credit would then be 14%. For comparison: The current rate from age 55 is 18% for women and men. This will significantly reduce the retirement credits for older workers in particular. 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 CHF 19,845 (as of 2023). According to the federal government, this means that an extra 70,000 or so people would then have mandatory insurance under the second pillar.
The coordination deduction is the amount deducted from a person's gross salary. It determines the coordinated salary and has so far been a fixed amount that is determined annually (CHF 25,725 as of 2023). Under the reform, 80% of a person's salary up to an amount of CHF 88,200 would be insured. The minimum coordinated salary would then no longer be necessary.
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.
