Switzerland recently held a national referendum on two pension reform initiatives. The first was to secure an additional (13th month) pension payment for retirees. The second, to gradually increase the current retirement age from 65 to 66 and peg it to life expectancy.

The first initiative was approved by an impressive 58.2% of voters. This represents a more emphatic victory than earlier poll predictions suggested. However, the second initiative (related to how to fund the first initiative) was rejected by an overwhelming 74.7% of the electorate.

In this post, we look at how the Swiss pension system works, why the referendum was called and what the yes vote could mean.

 

Swiss pension system in a nutshell

  • Switzerland operates a 3-pillar pension system. The first pillar represents the Old-Age and Survivors Insurance (OASI) or State Pension. (“AHV” in German).
  • This is intended to provide “adequate” cover for basic needs in old age.
  • The employer and employee both contribute 5.3% each month from the employee’s gross salary for AHV.
  • Most pensioners have a secondary income from an occupational pension scheme. This represents the so-called second pillar.
  • Both the employer and employee pay equal contributions into the second pillar and the employee can transfer the total amount of their account to a new employer occupational pension scheme when moving from one company to another.
  • The third and final pillar (3a and 3b)
    • Pillar 3a payments are tax deductible and the maximum amount that employees can contribute each year is ca. CHF 7’056 (in 2023)
    • Self-employed persons can pay 20% of their income (up to CHF 35’280 per year) into the 3a Pillar.
    • There are no limits to payments into Pillar 3b

Those unable to cover living expenses can claim supplementary benefits.

 

 

In order to access full first Pillar payments, 44 years of AHV contributions are required.

The 13th month initiative means that the state pension payment will now increase by
CHF2’450 to CHF31,850 annually for individuals, and by CHF3’675 to CHF47’775 for married couples. (This, in the case of full contributions).

For those with less than 44 years of AHV contributions, the pension amount paid is calculated on a yearly pro-rata basis.

 

Why call a referendum now?

Approval of the 13th month initiative mostly came over concern regarding living costs and support for a stronger social safety net. And the initiative was backed by a majority of Switzerland’s 26 cantons (which was also a requirement to pass).

Another argument however was that if Swiss authorities are capable of spending billions on development aid and welcoming refugees, then they should do the same for pensioners.

 

What the yes vote means?

The major concern now is regarding how to finance the initiative. OASI benefits are currently well funded thanks to previous reforms. However, deficits are expected after 2030, even without the introduction of the 13th pension payment.

Those who voted in favour have previously stated that forecasts for the pension fund’s financial situation have always been too pessimistic. But many retired Swiss nationals are now living abroad as well as foreign workers who have returned home from Switzerland. The OASI pension fund transfers CHF 500 million abroad every year.

It is estimated that the 13th pension payment will cost around CHF 4.1 billion to implement. The federal government will have to pay around CHF 800 million of this.

Part of the funding will mean an increase in the annual contributions collected from the pension funds, and the remainder will have to be met by the pension funds, probably through an additional joint contribution on salaries.

Meanwhile, the debate on Swiss pensions continues and the entire working population will most probably need to contribute to its funding.

 

Swissroll GmbH was founded over 20 years ago. During this time our team of experts has worked with hundreds of companies and literally thousands of contractors. Also cross border workers. Beyond our core function of payroll management, we offer advice to workers about which engagement model best suits theirs, and the clients needs. This includes giving advice in French, German and English and on social security, tax as well as working remotely and what to do in the case of mental health challenges. Call or contact us now on: enquiries@swissroll.ch