AHV 21: These are the most important changes

AHV 21 reform: The most important changes compared with today

The Federal Council wants to safeguard the first pillar (AHV/Old Age and Survivors' Insurance) until 2030 by means of the AHV 21 reform. To do so, it is meeting the needs of insured by allowing greater flexibility in the retirement age. In addition, the Federal Council is providing incentives to continue working for longer. The reform will be financed by bringing the retirement age for women into line with that of men and increasing value added tax.

Growing financing gaps in the AHV fund 

AHV revenue and expenditure have not been balanced since 2014 and since then funding gaps in the AHV fund have been growing. In 2019, the fund balance had a deficit of CHF 1.17 bn. The electorate knows how urgently reform is needed. Nevertheless, the 2020 pension reform bill was rejected in 2017. The Federal Council responded promptly to the "no" vote, and adopted the message on the AHV 21 reform in the summer of 2019 – which stills to be approved by Parliament and the electorate. Originally it was planned for such changes to enter into force on January 1, 2022. However, the issue is still being discussed in the Federal Assembly and a more realistic implementation date is likely to be in 2023.

Financial performance of the AHV fund with and without the AHV 21 reform

Financial performance of the AHV fund with and without the AHV 21 reform 

Source: Federal Social Insurance Office, Credit Suisse

The main objectives of the AHV 21 reform

For the Federal Council, the AHV 21 reform has two main objectives: 
    1. To maintain the level of AHV pensions.
    2. To maintain the financial security of the AHV up to 2030.

These are the most important changes envisaged by the AHV 21 reform

    1. The reference age (at present retirement age) for women would be gradually increased from 64 to 65. This applies to both the first and second pillar. Women born from 1959 to 1964 would be particularly affected by the raising of the retirement age if it were to enter into force in 2022, as the change would come shortly before they're due to retire. Thus, for this cohort, compensatory measures in the form of pensions supplements are envisaged. There is still disagreement however between the National Council and the Council of States – both in terms of how large this cohort of women in the transitional phase should be and the scope of the financial compensatory measures. Currently, the National Council is pushing for more generous arrangements than the Council of States.

    2. The choice of when to draw your pension is more flexible. Both men and women would be able to draw their pension from the age of 63 at the earliest or defer it until they are 70 at the latest. In addition, the reform would make it possible to draw a pension gradually, either by reducing the level of employment and deferring or drawing only part of the pension early, or by taking retirement in monthly instead of annual stages.

    3. Working beyond the reference age of 65 can increase a person's pension amount, thereby providing an incentive to work longer. An exemption of CHF 1,400 per month continues to apply. However, whereas contributions paid in excess of that in the past were not included in the calculation of a person's pension, the AHV 21 reform envisages other possibilities for boosting your pension: Contribution gaps can be closed in this way and the average annual income on which the AHV calculation is based increases. Though even on this point the two chambers have their differences of opinion. 

This is how the AHV 21 reform will be financed

• Increase in value added tax by 0.4%.
• Increase in the reference age for women from 64 to 65.

The AHV 21 reform has been submitted to the Federal Assembly and there are still differences between the National Council and Council of States. A popular ballot is mandatory to change the level of value added tax. The revised law is subject to an optional referendum after approval by the Federal Assembly. A popular ballot is also to be expected in this case.

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