The occupational pensions reform affects the pension fund. The pension fund is the part of the Swiss pensions system to which employees and their employers make a monthly pension contribution.

The German abbreviation, BVG, refers to the Federal Law on Occupational Old-Age, Survivors’ and Disability Benefit Plans. The occupational pensions reform is one of the more complex proposals that have recently been put to the vote. One reason for this is that there are well over 1,000 pension funds operating in Switzerland. Many of them have their own regulations. Accordingly, individual voters would have to do some research to find out whether and how they are personally affected by this reform.

This content was published on Mar 3, 2024 The Swiss agreed on Sunday to boost state pensions but refused to raise the retirement age.

Which pension scheme is at stake?

As a reminder, the Swiss pension system is based on three pillars.

The first pillar is the compulsory old-age and survivors’ insurance (OASI). It is organised by the state. It is based on the idea that the Swiss population should receive a basic pension that secures their livelihood.

The second pillar – the one under discussion here  –  is pension funds. Working people benefit from this system. They make mandatory contributions to their individual pension fund account via salary deductions. Employers also transfer contributions to this account. These are earnings-related. The pension fund is intended to enable pensioners to maintain their accustomed standard of living.

Finally, the third pillar is voluntary individual retirement savings, which the state rewards with tax relief.

How did this occupational pensions reform come about?

The government and parliament have long wanted to update the law on occupational pensions. A pension reform proposal was rejected in a referendum in 2017. This proposal linked the occupational pension funds and the OASI. The government then tackled the two pension schemes individually. The OASI reform has now been finalised, but the occupational pension reform has not yet been implemented.

The reform proposalExternal link that is now being put to the vote was adopted by parliament after several hard-fought debates. The Swiss Trade Union Federation then launched a referendum, meaning it is now up to the people to decide on September 22.

What does the occupational pensions reform seek to achieve?

The guiding principle of the occupational pensions reform was to finance future pensions more securely. Rising longevity in Switzerland means that people are drawing retirement benefits for longer, and that is having an impact on pension funds. The pensions capital accumulated by a worker’s retirement is paid out annually at the same rate until the end of his or her life, regardless of how long he or she lives or whether it is exhausted. At the same time, pensions funds have lowered their expectations for returns on investment.

Another aim of the reform is to provide better protection for part-time employees and people on lower wages. According to Interior Minister Elisabeth Baume-Schneider, this is particularly important for women, who often work part-time and for lower wages.

What specific steps are planned?

The occupational pensions reform comprises a package of five measures.

A lower conversion rate: This percentage rate determines how much of the accumulated retirement capital the pension funds pay out each year. Today, this rate is 6.8%. This means that a fund with CHF100,000 ($118,000) in retirement capital pays out a pension of CHF6,800 per year. According to the reform plan, this rate is to fall to 6%. Individual pensions will therefore be lower. In theory, however, the retirement capital can be drawn for longer. The reduction in pensions will be around 12%.

Compensation for the transitional generation: This reduction in pensions is to be compensated in stages for the 15 age groups who are affected. The compensation will be based on age and the amount of retirement capital saved. The older the people affected are and the less capital they have saved, the higher the compensation will be.

Adjustment of retirement credits: Contributions to the pension fund are made equally by employees and employers. The percentage of salary paid by the employer increases with the age of the employee. Today, this is staggered in four stages; now there will only be two stages. This means that employees aged 45 and over will still have 14% of their salary paid into the pension fund. Today, this rate is 18% for over 55-year-olds.

This measure is intended to increase the opportunities for older employees on the labour market. High pension fund contributions currently make people aged 55 and over more expensive for employers than younger employees — by law.

Lower entry threshold: To be insured in a pension fund, you currently have to earn at least CHF22,050 per year. Anyone earning less does not benefit from this system. In future, incomes from CHF19,845 will be eligible for pension fund coverage. This would affect around 100,000 employees.

Adjusted coordination deduction: This is the amount that is deducted from a gross salary to calculate pension fund contributions. The idea behind this is that occupational retirement  contributions should not duplicate deductions that have already been made for OASI contributions.

Until now, the coordination deduction has been a fixed annual amount. Now, 80% of any salary up to CHF88,200 would be the basis for calculating occupational retirement contributions.

The latter two measures, in particular, are aimed at improving pension provisions for low-income earners.

Who is affected by the occupational pensions reform?

There is no general answer to this question, because many pension funds have already established lower conversion rates. That can be done as long as the statutory minimum conversion rate is not affected. The latter only regulates the mandatory portion of the retirement capital, which applies to an annual salary of up to CHF88,200. Most working people in Switzerland are insured under the so-called extra-mandatory scheme. Many therefore already have lower conversion rates than 6.8%.

The reform would mainly affect the 15% to 30% of insured people who are primarily insured under the mandatory scheme. Those who have already retired are not affected, as there will be no change to current pensions.

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Are Swiss Abroad affected?

Most are not. Those who have already retired are generally not affected, as there is no change to current pensions. Employees abroad who work for a Swiss company with a Swiss pension fund could be affected.

Who backs the reform and why?

Those in favour include the Federal Council and Parliament, as well as numerous business associations and the conservative parties.

For Baume-Schneider, the bill is “a step forward that will bring many positive benefits”. Overall, the government presents the reform as a fair and balanced compromise solution.

Supporters also say that the reform means that future pensions under the mandatory occupational pension scheme will once again be adequately financed in the long term. Furthermore, the reform improves retirement provisions for people on lower incomes. Around 360,000 people would receive a higher pension, the majority of them women, as part-time workers, people with multiple jobs and those on low incomes would benefit.

Another argument: the reform would also put an end to an injustice. This is because those in employment currently have to cross-finance the mandatory portion of pensions. Another argument: a “no” vote would hold up the reform for at least another ten years.

What do the opponents say?

The trade unions criticise the fact that the reduction in the conversion rate is combined with a simultaneous increase in salary contributions. “With this proposal, people are set to pay more for less pension,” says Urban Hodel at the Swiss Federation of Trade Unions. In return, however, the financial industry would benefit, he says, siphoning off billions from the pension funds. In concrete terms, the trade unions calculate that some of those affected would receive up to CHF3,200 less in retirement benefits.

They do not accept the argument that women in particular would benefit: “There are no solutions for family-related career breaks and part-time work. And many people with multiple jobs, such as childminders or cleaners, will still not have access to a pension fund,” they say.

Opponents include the Social Democrats, the trade unions and some associations representing low-wage sectors such as Gastrosuisse, the umbrella organisation for hotels and restaurants.  They fear that labour in low-wage sectors will become more expensive. The farmers’ association has not given its members any recommendation on how to vote

 

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