What are the new AVS 21 reforms in Switzerland? 🏦👵

The structure of the Swiss pension system 🏦

The Swiss pension system is based on three main pillars: the state, occupational schemes and individual contributions. Old-Age and Survivors' Insurance (AHV) is the first pillar of the state pension scheme. Both employees and employers contribute 5.3% of their gross salary to this pillar. In addition to these direct contributions, the AVS also raises funds via value-added tax (VAT), a tax levied on consumer spending, for example, on everyday products.

The need for reform 🚨

The reform is motivated by the prediction that the AHV will soon start spending more than it collects. Federal government forecasts predict a deficit of around 18.5 billion Swiss francs over the next decade, making AVS reform necessary to offset these anticipated deficits.

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OASI 21 vote ✍️

On September 25, 2022, the Swiss electorate voted on two key proposals to reform the AHV system. One was to increase VAT to further fund the AHV, and the other was to raise the retirement age for women from 64 to 65. With a turnout of 52.5%, both measures were approved, with the VAT increase gaining 55% approval and the change in retirement age narrowly passing with 51%. These changes, scheduled to come into effect on January 1, 2024, are designed to secure the finances of the first pillar until 2030.

Implications of the VAT increase 📈

The AVS 21 reform provides for an increase in all three VAT rates.

• The standard rate on everyday goods and services will rise from 7.7% to 8.1%, resulting in an increase of 40 centimes for a pair of headphones costing 100 Swiss francs.
• The reduced rate, applied to certain products such as groceries and medicines, will rise from 2.5% to 2.6%, making a 100 Swiss franc grocery bill 10 centimes more expensive.
• Finally, the special rate for accommodation will rise from 3.7% to 3.8%.

These VAT changes should provide the AHV with an additional CHF 12.4 billion over the next ten years.

Changes in women's retirement age 👵

The AHV 21 reform also raises the retirement age for women from 64 to 65. This change will take place gradually, with an increase of three months a year from 2025, and will align the retirement ages of men and women by 2028. Women born between 1961 and 1969 will receive lifetime pension supplements to compensate for this transition phase, although the exact amount will vary according to year of birth. These changes are expected to reduce OASI expenditure by 4.9 billion Swiss francs over the next ten years.

Incentives to work beyond retirement age 👩💼

The AVS 21 reform also changes the way pensions are calculated for those who continue to work after retirement age. Prior to the reform, anyone earning more than 1,400 Swiss francs was subject to AHV contributions, but these payments did not increase the old-age pension. With AVS 21, all AVS contributions made after the age of 65 will be taken into account in calculating the pension, which could close the gap in previous contributions and increase personal AVS pensions.

More reforms to come? 🌅

The AVS 21 reform is only the first stage in the restructuring of the Swiss pension system, ensuring financial stability only until 2030. Discussions are also underway on the reform of the second pillar: BVG 21, which is currently being debated in Parliament.

How Earny can help you 🦸

As your payroll partner, Earny is here to help you adapt to the changes of the AHV 21 reform. Whether it's understanding how the new VAT rates affect your payroll calculations, or implementing the gradual increase in the retirement age for women, Earny can guide you. We are committed to providing accurate and up-to-date payroll services in line with the latest reforms, ensuring a smooth transition for your business.