AHV 21: What changes will the reform bring?

The restructuring of the Swiss pension system is under way

With the AHV 21 reform, the Federal Council is pursuing two important goals:

1. To maintain the level of AHV pensions.
2. To secure the financial equilibrium of the AHV until 2030.

The approval of the proposal is one thing; what the implementation of the reform means specifically for those insured, is another. Here is an overview of the changes and their impact on the population.

1. Alignment of the reference age for women to 65 years

The reference age for women is being raised to 65 years; it will be gradually increased by three months each year, with the first increase being implemented in 2025. The reference age of men and women will therefore not be fully aligned until 2028.

Women who are on the verge of retirement are particularly affected by this transition period. This is why nine cohorts of the transitional generation will receive lifelong pension supplements as a compensation measure. All women born between 1961 and 1969 are entitled to these supplements. The pension supplements vary depending on the year of birth.

The basic supplement is:

• CHF 160 for average annual income below CHF 58,800
• CHF 100 for average annual income between CHF 58,801 and CHF 73,500
• CHF 50 for average annual income exceeding CHF 73,501.

It is also worth noting that the lifelong supplement applies to women of the transitional generation who do not draw their pension early. Furthermore, the extra payment is not subject to the cap on the retirement pension for married couples and does not result in reductions to supplementary payments. The supplement will also be paid even if the maximum AHV pension is reached.

2. Flexibility in the choice of retirement date

The choice of when to draw your pension is more flexible. Both men and women can draw their pension from the age of 63 at the earliest or defer it until they are 70 at the latest. Women of the transitional generation can draw their pension from the age of 62 and receive lower reduction rates; in contrast, they cannot benefit from the pension supplement. 

Whether it is worthwhile for women to decide to forgo the pension supplement must be clarified individually. It should be noted that the reduction rates are expected to be lowered in general at the beginning of 2027, at the earliest. In order to benefit from even higher supplements, it can therefore be worthwhile for men and women to defer them before that. It should also be noted that for people with a relevant average income of less than CHF 58,800, the reduction rates are now 40% lower than before.

Both men and women may now draw their pension gradually. On the one hand, this is because gainful employment is reduced and the pension is only partially withdrawn in advance or deferred at a rate of between 20% and 80%. On the other hand, the advance withdrawal can now also be made in monthly rather than annual stages. The advance portion can be increased once, after which the remaining portion of the pension must be withdrawn in full. It is definitely worth checking whether a partial advance withdrawal makes sense in the case of phased retirement.

In addition, the AHV 21 reform requires all pension funds to allow partial retirement, deferrals, and advance withdrawals. Anyone who has already reached the reference age and has not yet been able to defer the pension fund should check whether it is worth joining the pension fund again.

3. Incentives to work beyond the reference age

Those who work beyond the reference age currently do not pay AHV contributions on gross salaries of up to CHF 1,400 per month. People earning salaries larger than this amount are obliged to make contributions, but this does not result in them receiving a larger pension, which makes working beyond the reference age less appealing.

After the AHV 21 reform enters into force, this exemption can now be waived voluntarily. However, employees must submit a request to their employer(s) of this themselves. In addition, AHV contributions paid in after the age of 65 will also count toward your pension on request. In this way, contribution gaps from earlier in your life can be closed and the contributions made can increase your personal AHV pension further.

Persons who have paid contributions beyond the age of 65 and who have not yet reached the age of 70 on January 1, 2024, may request that their pension is recalculated. This is particularly worthwhile if there were contribution gaps in the past. Once the reference age has been reached, a recalculation can only be requested once, taking into account AHV contributions paid after the reference age. It is recommended that you do not request it until you have stopped working or reduced to such an extent that additional contributions no longer make a difference.

Additional financing with the help of VAT

The increase in the reference age means savings for the AHV. The second major pillar of AHV financing is VAT. This additional income for the AHV is generated by an increase in the value added tax of 0.4 percentage points on the normal rate.

Further reforms in the Swiss pension system are essential

The AHV 21 reform is the first step toward the restructuring of the pension system – but this only secures funding until 2030. After that, the AHV risks running a deficit again.

Reform of the second pillar, which was passed by parliament in March 2023, is also on the cards: BVG 21. A referendum has already been called and is likely to be held in Fall 2024. It provides for the following points:

• Reduction of the minimum conversion rate to 6%.
• Compensation for the transitional generation: A supplement payment for the first 15 transitional cohorts is planned if the reform is approved. This payment serves to compensate for the reduced conversion rate.
• Flexible coordination deduction: The coordination deduction was a fixed amount up until now. New plans include compulsory enrollment of employees into a pension fund starting from an annual gross salary of CHF 19,845 and having 80% of their salaries insured at all times.
• Adjustment of retirement credits: The aim is to better align the difference in contributions across various age groups.

In addition, two initiatives will be voted on during 2024. One calls for a 13th AHV pension payment, while the other one is targeting a further increase in the retirement age.

^{Source: https://www.bsv.admin.ch/bsv/de/home/sozialversicherungen/ahv/reformen-revisionen/ahv-21.html}