Putting the BVG reform in context

What is important to understand
The occupational pension (BVG) consists of a mandatory part, in which annual salaries are insured in accordance with the statutory minimum requirements, and an over-mandatory (voluntary) part, in which pension funds can insure additional benefits. Points 1 to 4 of the BVG revision therefore affect all pension funds that only insure the BVG mandatory plan. However, for pension funds with over-mandatory benefits, the points are not applicable as such: the funds must ensure that their benefits as a whole comply with the ‘new’ BVG minimum. On the other hand, point 5 – the financing of pension supplements – affects all pension funds and therefore all insured persons, regardless of whether mandatory or over-mandatory benefits are insured.

Background: Throughout the course of their employment, employees and employers pay savings contributions into the pension fund. These are credited to their personal retirement savings in the form of retirement credits and earn interest. On retirement, the existing retirement savings are either paid out as a lump sum or converted into a lifelong retirement pension. The conversion of the accumulated retirement savings into a pension is determined by the conversion rate, which is to be reduced from 6.8% to 6.0% in the BVG mandatory plan with the BVG revision. If the mandatory retirement capital amounts to 100,000CHF, a pension of 6,000CHF would now be paid out per year instead of the previous 6,800CHF.

Background: The retirement credit is the amount that – in addition to the interest credits – is credited to an insured person’s retirement savings. The rates are set as a percentage of the coordinated annual salary and depend on the age of the insured person; the employer must finance at least half of the retirement credits.

The BVG reform provides for a smoothing of retirement credits, which should make the employment and continued employment of people over 55 more attractive for employers:

Background: For a person to be compulsorily insured under the occupational pension plan, they must currently receive an annual salary of at least 22,050CHF from an employer. This threshold is to be lowered to 19,845CHF with the BVG reform in order to facilitate faster enrolment in the BVG for part-time employees and employees with multiple jobs.

Background: In principle, the reduction in the BVG minimum conversion rate is largely compensated for over the entire contribution period by reducing the coordination deduction and adjusting the retirement credits. However, this does not apply to those in employment who will retire in the next few years and are therefore facing pension reductions. To minimise the pension reductions, compensation measures in the form of pension supplements are therefore planned for this ‘transition generation’ spanning 15 years:

• Years 1961-1965: maximum 200CHF per month (2,400CHF per year)
• Years 1966-1970: maximum 150CHF per month (1,800CHF per year)
• Years 1971-1975: maximum 100CHF per month (1,200CHF per year)

The supplements will vary depending on the retirement savings:

• ≤ 220,500CHF = full (maximum) supplement
• > 441,000CHF = no supplement
• If the pension assets are between these two threshold values, there is eligibility for a reduced pension supplement.

Further eligibility requirements for a pension supplement:

• For early retirement only from age 62
• At least 50% of the retirement savings as a pension
• Insured in Pillar 2 for a total of at least 15 years
• Insured for at least ten consecutive years under AHV immediately before drawing a pension from Pillar 2 

Example: An insured person falls into the transition generation of the new pensioner cohorts 6–10 (born between 1966 and 1970) and has a credit balance of 200,000CHF on retirement and also fulfils the other eligibility requirements. This means that they receive a supplement of 150CHF, regardless of whether the retirement pension from their own pension fund decreases or not (the credit principle).

Financing the pension supplements

The pension supplements of approx. capitalised 11.3bnCHF are to be paid by all pension funds and individuals, regardless of whether they receive money or not. They are to be financed by a salary-based contribution up to a maximum of 339CHF per person and year. If the pension fund levies a new contribution for this, the employer must cover at least half of it.

In Switzerland, around 5.3 million people are employed as at mid-2023, of which around 4.6 million are insured under occupational pension plans.

The age structure of the labour force is as follows:

Over 8% of the labour force is between 15 and 25 years old, 58% is between 25 and 50 years old and just under 32% is in the ‘transition generation’ between 50 and 65 years old. The total pension supplements of approx. capitalised 11.3bnCHF are therefore mainly financed by the younger 2.6 million employees (= 58%) aged between 25 and 50, while those over 50 (32%) only have to finance the pension supplements until retirement.

As mentioned above, the FSIO assumes that of the 32% of insured persons who belong to the transition generation, only half, i.e. 16%, are entitled to a full pension supplement. As a result, more than two thirds of all employed persons finance a pension supplement for a minority of persons between the ages of 50 and 65, only a fraction of whom are affected by a pension reduction at all (see section 1 Reduction of the BVG Minimum Conversion Rate). For the majority of the transition generation, the pension supplement is therefore not compensation for a lower pension, but a pension increase paid for by the younger generation.

Because there is no provision for checking whether the pension actually decreases, some insured persons receive higher pensions (sample cases 2 and 4) and others receive lower pensions (sample cases 1 and 3).
 

The aim of our second pillar is to save as much capital as possible on an individual basis using the funding principle and to obtain the highest possible interest credits. By linking the prospective pension supplements to the existing savings capital, the current BVG reform creates false incentives that contradict the basic idea of the BVG. They can be summarised as follows: