Last update: 17.09.2024 08:33
Occupational pension provision in Switzerland, also known as the 2nd pillar, has long been an important topic of political debate. In recent years, it has become clear that the existing system urgently needs to be reformed. Parliament has therefore launched a reform of the occupational pension scheme, BVG21. The BVG revision is intended to close the pension gaps and make the system more sustainable overall. What exactly does the BVG21 reform involve and what impact will it have on you?
Why does Switzerland need an occupational pension reform?
Switzerland has a solid social security network.
However, demographic trends mean that this system needs to be consolidated, particularly in occupational pension provision (2nd pillar).
Following the adoption of the AHV 21 reform on September 25, 2022, the BVG 21 reform was also approved in the final parliamentary vote on March 17, 2023.
The occupational pension reform aims to secure pensions, strengthen financing and improve the protection of part-time employees – and therefore women in particular.
Pension funds recently had to spend more money on financing current pensions than had been saved by employers and employees.
This leads to a redistribution from the working generation to the pensioner generation.
There was a broad consensus in Parliament that this must be changed.
The status of the BVG reform 2023: What’s coming with BVG21?
The BVG21 reform has various effects on occupational pensions in Switzerland. We take a look at these below. But first an overview in table form.
| Parameters | Current BVG | BVG21 reform adopted |
|---|---|---|
| Conversion rate | 6.8 % | 6.0 % |
| Coordination deduction | 7/8 of the max.
AHV pension (25,725 francs) | 20 % of the AHV salary (max. CHF 17,640) |
| Entry threshold | ¾ of the max.
AHV pension (22,050 francs) | 67.5 % of the max.
AHV pension (19,845 francs) |
| Minimum insured salary | 1/8 of the max.
AHV pension (CHF 3,675) | canceled |
| Maximum insured salary | 2 1/8 of the max.
AHV pension (62,475 francs) | 2 2/5 of the max.
AHV pension (70,560 francs) |
| Retirement credits = savings contributions (at age 25/35/45/55) | 7 % / 10 % / 15 % / 18 % | 9 % / 9 % / 14 % / 14 % |
Lower conversion rate
The conversion rate is the factor used to convert the capital saved into a lifelong pension. With the reform, the minimum conversion rate in the BVG mandatory scheme is to fall from the current 6.8 percent to 6.0 percent. This means that only CHF 6,000 instead of CHF 6,800 will be paid out per year for every CHF 100,000 of retirement capital saved. This will result in a pension reduction of around 12 percent with unchanged retirement assets.
Pension supplement for the transitional generation
To compensate for the reduction in pensions, a transitional generation is to receive a pension supplement. Parliament agreed that 15 cohorts will receive this supplement for life and that around half of this generation will benefit from it. However, this pension supplement will be graduated according to age and pension fund assets. Anyone with retirement assets of CHF 220,500 or less at the time of retirement will be entitled to the full supplement. For retirement assets between CHF 220,500 and CHF 441,000, there will be a degressive supplement. Anyone with more assets will not receive any compensation.
| Amount of pension assets when drawing a pension | Surcharge amount | Surcharge (francs / month) |
|---|---|---|
| ≤ 220 500 francs (2.5 times the maximum insured annual salary) | full surcharge | 200,- for the first 5 years 150,- for the next 5 years 100,- for the last 5 years |
| ≥220,500 francs and ≤ 441,00′ francs | Reduced & graduated | incrementally 100,- to 150,- |
| ≥ 441,000 francs (5 times the maximum insured annual salary) | no surcharge | 0,- |
The pension supplement is financed by salary deductions levied on salaries up to CHF 176,400. So anyone with higher BVG retirement assets – around half of the population – will pay a higher salary deduction of 0.24% over the next 15 years, like all employees, but will not receive a pension supplement. All cohorts under the age of 50 when the reform comes into force will not receive any compensation either.
System change to a percentage coordination deduction of 20%
The coordination deduction determines how much of your salary is insured in the 2nd pillar. In simple terms: income minus coordination deduction = insured total salary. The coordination deduction changes from a fixed deduction of CHF 25,725 to 20 percent of income. Currently, the maximum BVG salary is CHF 88,200. In this case, the new 20% deduction would therefore amount to CHF 17,640 and the insured salary would now be limited to CHF 70,560. The salary contributions must be paid on this amount.
Let’s take another example: Maria earns CHF 50,000 a year. She previously had an insured salary of CHF 25,115. Her insured salary is now CHF 40,000 (salary of CHF 50,000 – coordination deduction of CHF 10,000), from which her occupational pension contributions are deducted. The lower coordination deduction therefore ensures that more of her income is insured. In the case of low incomes, as in Maria’s case, this leads to a higher retirement capital, but also to higher deductions for the insured person (and the employer) during their working life.
Adjusted retirement credits for all age groups
The salary contributions to the pension fund – also known as retirement credits – will be smoothed. Up to the age of 44, the retirement credit will in future be 9 percent (previously two stages of 7 and 10 percent) of the salary subject to BVG contributions. From the age of 45, it will be 14 percent (previously two levels of 15 and 18 percent). As a result, the retirement credits for older employees will be reduced in order to strengthen their chances on the labor market. Accordingly, the over 45s will save less in the BVG mandatory scheme than before. The obligation to contribute to the occupational pension scheme will continue to apply from the age of 25.
| Age group | Applicable law | With BVG21 reform |
|---|---|---|
| 25 – 34 | 7 % | n.a. |
| 35 – 44 | 10 % | n.a. |
| 25 – 44 | n.a. | 9 % |
| 45 – 65 | n.a. | 14 % |
| 45 – 54 | 15 % | n.a. |
| 55 – 65 | 18 % | n.a. |
Entry threshold for occupational benefit schemes is falling
Until now, you had to earn at least CHF 22,050 per year with an employer in Switzerland to be insured in a pension fund. The occupational pension reform now provides for this so-called entry threshold to be lowered to CHF 19,845. The lower entry threshold should enable people with lower incomes in particular to make better provision for old age. It is expected that around 100,000 employees will be better insured in the pension fund: 70,000 of them as new insured persons and 30,000 already insured persons with low incomes.
However, there is also criticism of this measure. Some experts fear that lowering the entry threshold could lead to higher administrative costs for pension funds, as they will now have to deal with smaller assets. In addition, the reduction could lead to pension provision becoming unaffordable for the newly insured, especially for people in precarious employment, as they will have to pay additional contributions into the pension fund in future.
What does the BVG revision mean for part-time employees?
The BVG21 reform brings advantages for part-time employees. Previously, they were at a disadvantage when it came to occupational benefits. The BVG21 reform stipulates that part-time employees will in future receive the same percentage share of the pension scheme as full-time employees. This means that their salary will be paid into the pension fund pro rata and they will have the same entitlement to benefits as full-time employees.
A fixed coordination deduction will also no longer apply. Instead, 80 percent of the respective salary will always be insured. The change from a fixed coordination deduction to the new 20% of salary means that part-time employees with a low income are now also covered by the full savings contribution obligation in the 2nd pillar. This means that they and their employers contribute more money to the pension scheme. In addition, the lower entry threshold means that more employees have access to occupational benefits insurance.
For example, the BVG21 reform should help to ensure that part-time employees are treated more fairly in occupational pension schemes and thus achieve greater financial security in old age.
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How does the BVG21 reform close the pension gap? Who benefits?
First of all, the absolute pension amount from the BVG mandatory scheme will fall for all insured persons because the minimum conversion rate is falling. As you probably already know: retirement assets multiplied by the conversion rate equals the retirement pension. And because the conversion rate is now multiplied by 6 instead of 6.8, the monthly pension from the mandatory scheme will fall. This is compensated for 15 cohorts from the transitional generation. Not for everyone else. So you could say that anyone under the age of 50 when the reform comes into force (presumably in January 2025) will be affected. However, they will benefit from a more stable system in the 2nd pillar because less will be redistributed to (future) pensioners due to the lower conversion rate.
For the parliamentary deliberations of the National Council and the Council of States, the“Effects of the equalization models on BVG retirement credits and BVG retirement pensions” were determined on the basis of model calculations. Although these do not reflect individual working careers or extra-mandatory benefits, they did support the decision-making process. Various age groups (20, 25, 45, 50, 55, 60, 65 years) with salary levels of CHF 25,000, CHF 40,000, CHF 55,000, CHF 70,000 and CHF 88,200 were considered.
The calculations show that lower salaries (25,000, 40,000, 55,000 francs) will receive almost the same (-1%) or significantly higher average BVG pensions, while these will fall for the higher salary levels (70,000, 88,200) – despite the bonuses.
Thanks to the lower entry threshold and the percentage coordination deduction, part-time employees and employees with low incomes can join the occupational benefit scheme more quickly. They will benefit from the fact that not only they but also their employer will save retirement assets for them. Some employers’ associations are therefore critical of the reform because they fear additional costs. Other interest groups criticize the fact that lower earners will have less money left over from their salary during their working life than before the reform.
Our assessment:
The younger you are and the lower your salary, the better the BVG21 reform is for you.
If your salary is over CHF 70,000 per year and you are older than 45 in 2025, your future BVG pension will be lower as a result of the reform. You can find details in the table
What are the next steps for the BVG21 reform?
The people will vote on the reform of the occupational benefit scheme in a referendum on September 22, 2024.
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The reform will bring far-reaching changes to retirement pensions.
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FAQs on the BVG reform 2024 / BVG revision 2024
What is the BVG21 reform?
The BVG21 reform is a reform of the Swiss pension system that was adopted by Parliament on March 17, 2023. The revision entails changes in the area of occupational pensions (2nd pillar) in order to make the pension system more sustainable.
What is the current status of the BVG reform?
The conciliation conference of the National Council and the Council of States adopted the BVG reform on March 17, 2023. All differences between the Councils were resolved. In the final vote, Parliament approved various changes to occupational pensions in Switzerland. A referendum was held against the reform. The BVG reform will now be put to a popular vote on September 22, 2024.
What changes will the BVG21 reform bring?
The BVG21 reform brings important changes: the adjustment of the coordination deduction, the lowering of the entry threshold for occupational benefits, pension supplements for 15 cohorts of the transition generation and the reduction of the BVG conversion rate from 6.8 % to 6.0 %.
Who is affected by the BVG21 reform?
The BVG21 reform affects all employees in Switzerland who work for a company with a pension fund and are therefore subject to the Swiss pension system. Pensioners with current pensions from the pension fund are not affected by the reform.
When will the BVG reform come into force?
The reform was originally due to come into force on January 1, 2025. However, the trade unions and left-wing parties successfully launched a referendum against the reform, which will be voted on on September 22, 2024. The date has therefore been delayed. It is therefore not yet clear exactly when the reform will come into force. Presumably, the BVG21 reform will now come into force on January 1, 2026 or January 1, 2027. The presentation on the voting document points to January 2027. 1
What is the coordination deduction?
The coordination deduction is an element of the pension system and refers to the amount on which you do not have to make contributions to the pension fund in the 2nd pillar. The BVG21 reform will adjust the coordination deduction: instead of an absolute amount, the amount of the coordination deduction will in future depend on your salary. In future, the coordination deduction will be 20% of the AHV salary. The so-called “minimum coordinated annual salary” of currently CHF 3,675 will no longer apply.
As an employee, do I have to actively look after my pension fund?
As an employee, you are compulsorily insured in the pension fund selected by your employer. It therefore makes sense for you to familiarize yourself with the benefits provided by your pension fund.
How will the BVG21 reform be financed?
The BVG21 reform is financed by various sources, in particular by contributions from employees and employers. The pension supplement for the transitional generation will be financed for 15 years via salary deductions – limited to a salary of CHF 176,400. Partly centralized via the Guarantee Fund (SIFO), 0.24% of the “extended” coordinated salary (BVG) is levied for 15 years. The “extended coordinated salary” results from the doubling of the maximum insured annual salary from the current CHF 88,200 to CHF 176,400. This increases the maximum amount on which the calculation of contributions for the mandatory occupational pension plan is based from CHF 70,560 to CHF 141,120.
Can I change my pension fund if I do not agree with the BVG21 reform?
You can change your employer and, via this detour, also your pension fund. However, all pension funds must make the statutory adjustments.
Will pensions be increased by the BVG21 reform?
The reform is intended to help make the pension system more stable in the long term. The reduction in the conversion rate from 6.8 % to 6.0 % will lower the monthly pension amount from the BVG mandatory scheme. This will be offset for some age groups. Employees with low incomes will also receive more pension from the BVG mandatory scheme in future. Unfortunately, it is not possible to make a general statement on the pension increase.
When do I have to start paying into the pension fund with the BVG21 reform?
As before, the savings start date is from the age of 25.
Who belongs to the transition generation of the BVG21 reform?
Insured persons who are 15 or fewer years away from the ordinary reference age when the reform comes into force belong to the transitional generation. If the BVG21 reform comes into force on January 1, 2027, those born between 1962 and 1976 (♂) or 1962 and 1977 (♀) will belong to the transitional generation.
Summary of the BVG reform 2024
The BVG21 reform is intended to make occupational pensions fit for the future. The conversion rate in the BVG mandatory scheme will be reduced from 6.8% to 6.0%, which corresponds to an average pension loss of around one month’s salary per year. To compensate for this reduction, a lifelong pension supplement will be introduced for a transitional generation of 15 cohorts. The changes to the entry threshold and the coordination deduction are particularly relevant for part-time workers or employees with low annual salaries. The reform is advantageous for older employees with low pension assets, as they are to be compensated by the pension supplement. Nevertheless, the reform has also met with criticism and its acceptance in the expected referendum is uncertain. Overall, the BVG21 reform is an important step towards strengthening occupational pension provision in Switzerland and securing pensions in the long term.
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Disclaimer
We have taken great care with the content of this article. Nevertheless, we cannot rule out errors and cannot guarantee that it is correct and complete. This article is not a substitute for advice. We do not offer investment or tax advice and recommend that tax issues are always clarified with an expert and/or the relevant cantonal authority. We accept no liability whatsoever.
