AHV21, STAF and BVG reform: what does this mean for me?

Last update: 17.09.2024 08:35

Various reforms to the Swiss pension system are underway.
WTF does STAF mean?
And what is in store for me with the planned AHV21 and BVG reform?
How much longer will I have to work and what will happen to my pension?
We provide the facts and explain what the reforms mean for your finances.

This is how the Swiss pension system is structured

With 3 building blocks, the state and you ensure that you still have enough money after your working life. AHV and occupational benefits are building blocks one and two.
Together they should ensure that you can continue to enjoy the standard of living to which you are accustomed.
How much does that add up to?
Well, the benefit target of the first and second pillars is 60% for an income of 85,320 francs.
If you have always earned at least this much without interruption, you will almost certainly receive 60% of this, i.e. just under CHF 4,700 a month.
But that’s pretty unlikely.
This is because the AHV and BVG only provide a lower replacement rate for incomes of more than CHF 85,320 (BVG insurance limit).
That’s why the idea is for you to put something aside yourself.
This is the third building block, private pension provision in pillar 3a and pillar 3b.
The state offers a tax incentive so that you might actually do something.

Rising life expectancy and low interest rates make reforms unavoidable

In recent years, various factors have led to the first and second building blocks crumbling somewhat.
Because life expectancy in Switzerland is increasing and there are fewer and fewer children, fewer and fewer active people are financing more and more pensioners and the retirement phase is also lasting longer.
This demographic challenge is compounded by the lower expected return on pension fund assets in the low interest rate environment, as a significant proportion of assets are invested in bonds.
Following the failure of the 2020 pension plan, there is now a new attempt to reform the first and second pillars.
This is being done separately, in slices, with three parts.
The first piece is done, two more are still in the workshop.
As a customer, you still have to approve workpieces 2 and 3 in the referendum.
Let’s take a closer look at the workpieces.

Workpiece 1: STAF improves AHV financing – you pay higher contributions

First, the AHV was financially stabilized.
Because the people approved the referendum in May 2019, the Federal Act on Tax Reform and AHV Financing(TRAF) came into force on January 1, 2020. This means that the AHV will receive around CHF 2 billion more money per year with 3 measures.
You pay for the first measure directly through higher contributions.
You pay for the other two measures indirectly.

Higher contributions for all

For employees the AHV contribution rate will rise for the first time since 1975.
By 0.3 percentage points to 8.7 percent.
Employers and employees will each pay half of the increase. Self-employed persons bear the increase of 0.3 percentage points alone.
Their AHV/IV/EO contributions will amount to between 5.344 and 9.95 percent from January 1, 2020.
The minimum AHV contribution for self-employed persons with an income of CHF 9,400 or less and for those not in gainful employment will rise to CHF 496 per year.
Also for Non-employed persons the minimum contribution increases, their maximum contribution is now CHF 24,800.
The AHV expects this to generate around CHF 1.2 billion in additional income each year.

What does that mean for you?
The AHV works according to the principle of solidarity and the intergenerational contract.
This means that the payments made by (younger) insured persons are used to cover current pensions.
They therefore come into the fund (the AHV equalization fund) and go straight back out to someone else.
With an income of CHF 85,320, this means that you are now financing solidarity between the generations with the equivalent of around CHF 130 per year.

AHV gets more money from the federal government

Since 1999, the so-called demographic percentage has been levied together with VAT.
Now 100% of it really does go directly to the AHV.
As this was not the case previously, the AHV will receive CHF 520 million more each year.
And in future, the federal government will no longer be responsible for just 19.55% of AHV expenditure, but 20.2%.
This will bring the AHV a further CHF 300 million more in 2020.
The money is no longer available to the federal government for other expenditure.

Workpiece 2: work longer and more flexibly with AHV21

The reform to stabilize the AHV (AHV21) has been before parliament since August 2019.
The level of AHV benefits is to be maintained and the financial balance of the insurance is to be secured.
This is a major challenge given the negative results of recent years.
The Proposal essentially comprises 3 elements.

AHV21 brings a uniform reference age of 65 for women and men

The new term is no longer retirement age, but reference age.
For you as a woman, AHV21 means a gradual increase in the reference age of three months per year from 2023, provided the reform comes into force as planned in 2022.
As a result, a uniform reference age of 65 will apply for women and men from 2026.
Women born between 1959 and 1967 will benefit from the one-year increase in the retirement age through two compensatory measures.
The first is a smaller reduction if you draw your pension early.
And secondly, an adjusted pension formula for women who receive less than the maximum old-age pension.
If your average annual income is less than 85,320 francs, you will benefit from an average of 76 francs more pension per month.

With AHV21, you can choose the timing of your pension more flexibly

AHV21 gives you more choice as to when you want to draw your retirement pension.
In future, you will be able to draw your pension between the ages of 62 and 70; men will be able to retire one year earlier than today.
Early withdrawal is now possible not only at the beginning of the year, but for any month.
The longer life expectancy is also taken into account: it is reflected in adjusted rates for early withdrawal or deferral of the pension.
You can now retire on a sliding scale.
To do this, you can draw a partial pension in advance or defer it and work part-time at the same time.

Working longer than 65?
You can continue to do so, which is why CHF 1,400 per month or CHF 16,800 per year will continue to be exempt from AHV contributions in future.
AHV contributions after the age of 65 will now be taken into account when calculating your pension.
This allows you to close any contribution gaps (“missing years“) and increase your pension.

With AHV21 you pay more in everyday life – VAT rises to 8.4%

In addition to equalizing the retirement age and making retirement more flexible, the AHV equalization fund needs even more income.
Because the Swiss are living longer and longer, not only active contributors should make a financial contribution with higher contributions (see workpiece 1 – STAF), but also pensioners.
This is why VAT is being increased.
So that this does not hit socially weaker people so hard, the tax rate for everyday consumer goods will only rise from 2.5% to 2.7%.
The expected additional revenue of CHF 21 billion between 2022 and 2030 will flow into the AHV equalization fund.
In order to increase VAT, the Federal Constitution must be amended.
This element of AHV21 will therefore be subject to a mandatory referendum, while the other two elements will only be subject to an optional referendum.

Workpiece 3: pay in more with BVG reform and lower conversion rate

In December 2019, the Federal Council submitted the social partners’ model for consultation on the reform of occupational pension provision (BVG). This model is a compromise between the employers’ association and the trade unions.
The aim is to maintain the overall benefit level of the mandatory occupational pension scheme and even improve it for lower incomes.
The model entails the following measures.

Rapid reduction in the conversion rate

The minimum conversion rate will fall from 6.8% to 6% in one step when the reform comes into force.
The conversion rate translates your retirement assets into a pension.
The consequence for you: your monthly BVG pension will fall immediately.
With retirement assets of CHF 300,000, this amounts to CHF 2,400 per year or CHF 200 per month.

Compensation through supplement for AHV recipients

To mitigate this, future AHV and IV pensioners are to receive a monthly supplement for life.
The first five cohorts will receive CHF 200, the next five cohorts CHF 150 and the following five cohorts CHF 150.
Later, the supplement will be redefined annually by the Federal Council.
This pension supplement will be financed on a solidarity basis via a contribution of 0.5% of the annual income subject to AHV contributions.
So let’s take it slowly again: so that the conversion doesn’t hit so hard, there will be financial compensation in the form of a new AHV supplement.
Three guesses who will pay the surcharge?
The actively insured, see STAF. The surcharge here will cost you around 215 francs per year on an income of 85,320 francs. Self-employed persons pay twice as much, because they pay the surcharge entirely on their own.

Halved coordination deduction boosts BVG retirement assets

The coordination deduction is the part of your AHV-liable income on which you do not pay an occupational pension contribution.
This is precisely because an AHV contribution is already paid on it, otherwise you would pay social insurance contributions twice on the same income.
So if the coordination deduction is reduced, MORE of your income will be subject to the AHV rate AND at the same time to compulsory BVG savings.
Halving the coordination deduction therefore means that you and your employer save up retirement assets in the BVG on MORE of your income.
This means that part-time employees will also be able to build up a BVG pension.
And what does this mean for your finances?
As an employee, you now also pay the BVG pension contribution on income of CHF 12,444 – 24,885.
For the 25 – 44 age group, this will now be 9%, which means that you will have to save CHF 560 more per year.
Your employer will deduct this money directly and you will no longer be able to use it as income.

Now only two rates for retirement credits

In future, there will only be a credit rate of 9% for the 25 – 44 age group and a rate of 14% for the 45+ age group.
Although the new rates are visually lower than before, they are based on an insured salary with a halved coordination deduction.
In simple terms, it can be said that the youngest age group will start to build up their retirement assets more quickly in future and will therefore pay a higher rate.
The new staggering eliminates the additional costs for people over 54 compared to those aged 45 to 54.
This will eliminate the structural disadvantage of this group on the labor market.

Credit rates by age group in the occupational benefit scheme

Source: Federal Department of Home Affairs FDHA, December 2019

Conclusion

STAF directly increases your costs through the higher AHV contribution rate.
With AHV21, you can approach your retirement more flexibly and have demographically adjusted reduction and deferral rates.
It also means additional costs in your everyday life due to VAT and, as a woman, you will have to pay contributions for longer in order to receive the maximum pension.
The BVG reform will result in lower pensions due to the lower conversion rate, which will be compensated for by a non-systemic supplement from the AHV, depending on the year of birth.
You pay the supplement with higher AHV contributions.
It also means more prescribed capital formation for everyone, partly because the coordination deduction is halved and the contribution rates are already higher than before for younger age groups.

STAF and AHV21 are intended to achieve stabilization for the twenties.
However, demographics and the interest rate environment will make it unavoidable to implement further benefit cuts or higher contributions in a few years’ time to ensure that AHV finances remain secure beyond 2030.
This makes it all the more important for you to take care of your private pension provision in pillar 3a and pillar 3b quickly in order to benefit from the compound interest effect for as long as possible.

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