On 24 September 2017, the Swiss electorate voted on the Federal Decree on Additional Funding for OASI Pensions by increasing the Rate of VAT and on the Federal Act on the 2020 Pension Reforms.
Federal Decree on Additional Funding for OASI Pensions by increasing the Rate of VAT / Federal Act on the 2020 Pension Reforms
Introduction
Old-age pensions are the most important element in Switzerland’s social security system. their financial stability is in danger, because those born in the years when there was a high birth-rate will soon be reaching retirement age, because life expectancy is increasing and because interest rates are exceptionally low.
Aim of the reforms
The 2020 pension reforms aim to secure the level of pensions and adapt the pension system to bring it in line with social developments. The goal is to maintain equilibrium in the pension system until 2030 by making savings and securing additional revenue. The minimum conversion rate will be gradually reduced in order to stabilise the mandatory occupational pensions system. Thanks to measures taken in relation to occupational pensions and by increasing new OASI retirement pensions by CHF 70 a month, the level of retirement pensions should remain the same. The retirement age for women will be gradually increased from the current 64 to 65. The reforms introduce more flexibility, by making retirement between the ages of 62 and 70 possible.
Criticism of the reforms
The reforms have met with opposition on various fronts. Some are critical of the higher retirement age for women and higher VAT, claiming that they lead to greater social injustice. They have demanded a referendum on the Reform Act. Others say that the reforms do not bring savings but instead expand the OASI system, and that the financial problems have only been postponed.
Position taken by the Federal Council and Parliament
In the opinion of the Federal Council and Parliament, a reform of the pension system is urgently needed, as no substantial changes have been made in the past 20 years. The 2020 pension reforms will guarantee the level of pensions, make the long-promised increase in flexibility a reality and close various loopholes in pension provision. A stable old-age pension system is a key element in ensuring Switzerland’s social and economic development.
1st and 2nd pillar pensions to be reformed
The Swiss pension system is based on three pillars. The 1st pillar is the Old Age and Survivors’ Insurance (OASI). It ensures that the elderly in Switzerland are safe from poverty and financial hardship, if need be thanks to supplementary benefits as well. The 2nd pillar is the occupational pension system. When added to the OASI pension, an occupational pension should enable retired people to continue to enjoy the standard of living to which they are accustomed. The 3rd pillar comprises private pensions and saving schemes, which are used to cover additional individual needs. The 2020 pension reforms relate to OASI and the compulsory part of the occupational pension system. Contributions are compulsory on annual income between CHF 21,150 and CHF 84,600 . The law provides that certain minimum benefits must paid to those making these compulsory contributions. However, more than 80 per cent of employees are entitled to an occupational pension in excess of these minimum benefits, because their pension fund offers better benefits or because they earn and contribute more. In this area beyond what is required by law, pension funds are largely free to determine the conversion rate themselves and to adjust it in line with changes in the general situation. Many funds have already done this. The reforms will do nothing to change this.
For more detailed information on the reforms, see: www.altersvorsorge2020.ch
Last modification 24.09.2017
