Switzerland's old-age pension system is built on three main pillars: state, occupational, and individual provisions. The Old Age and Survivors' Insurance (AHV) falls under the first state pillar. Employees and employers both contribute 5.3% of their gross salary to this pillar. Besides these direct contributions, AHV also raises money via Value Added Tax (VAT), a tax levied on consumer spending, for example, on groceries.
The crux of the reform comes from the prediction that AHV will soon start spending more than it collects. Forecasts by the federal government project a shortfall of approximately CHF 18.5 billion over the next decade, necessitating the reform of the AHV to compensate for these anticipated deficits.
Swiss voters had their say on the AHV reform on September 25, 2022, voting on two key proposals. One was to increase VAT to provide additional financing for the AHV, and the other was to increase women's retirement age from 64 to 65. With a voter turnout of 52.5%, both measures were approved, with the VAT increase receiving 55% approval and the retirement age change narrowly passing with 51%. These changes, slated to come into force on January 1, 2024, aim to secure the first pillar's finances until 2030.
The AHV 21 reform includes a rise in all three VAT rates.
Those changes in VAT is expected to provide AHV with an additional CHF 12.4 billion over the next ten years.
The AHV 21 reform also increases women's retirement age from 64 to 65. This change will occur gradually, with increments of three months per year starting in 2025, and align the retirement age of men and women by 2028. Women born between 1961 and 1969 will receive lifelong pension supplements to counteract this transition phase, although the exact amount will vary by birth year. These changes are projected to decrease AHV spending by CHF 4.9 billion over the next decade.
The AHV 21 reform also alters the pension calculation for those who continue to work past the retirement age. Before the reform, anyone earning more than CHF 1,400 was subject to AHV contributions, but these payments did not increase the old-age pension. Under AHV 21, all AHV contributions made after age 65 will count towards the pension calculation, potentially closing previous contribution gaps and increasing personal OASI pensions.
The AHV 21 reform is only the first step in restructuring Switzerland's pension system, providing financial stability only until 2030. Discussions are also underway about reforming the second pillar: BVG 21, which is currently under debate in Parliament.
As your payroll companion, Earny is here to help you adjust to the AHV 21 reform changes. Whether it's understanding how the new VAT rates affect your payroll calculations, or implementing the phased increase in women's retirement age, Earny can guide you through. We are committed to providing accurate, updated payroll services in line with the latest reforms, ensuring a seamless transition for your business.