On 13 December 2019, the Federal Council sent the BVG/LPP reform to the consultation process. What are the main points of this preliminary draft law and which points give rise to discussion and controversy?
On 24 September 2017, the people of Switzerland rejected the draft law on pension provision 2020 - including the reduction of the minimum conversion rate for mandatory occupational pension provision from 6.8% to 6.0%. As a result, the Federal Council decided to draft two separate proposals for the first and second pillars. In August 2019, the Federal Council already approved the dispatch on stabilising the 1st pillar (AHV21).
On 13 December 2019, the Federal Council has sent the BVG/LPP reform to the consultation process. The proposed reform aims to secure pensions, strengthen financing and improve the insurance of part-time employees and thus particularly of women. Once again, lowering the minimum conversion rate in mandatory occupational pension provision is the linchpin of the reform. The preliminary draft law is largely based on the compromise proposal drawn up by the social partners (SAV, Travail.Suisse and SGB), because the Federal Council considers it to be a reform that can be adopted by a majority. The consultation period will be open until 27 March 2020.
Key data of the preliminary draft law
The fundamental innovations of this preliminary draft are as follows:
|Conversion rate||Reduction of the minimum conversion rate from 6.8% to 6.0%, entering into force in one step||Securing the financing of occupational pensions; adjustment to higher life expectancy and low interest rates|
|Compensatory measures: pension supplement
||Lifelong monthly pension supplement for future retirement and disability pensioners of the occupational pension scheme of CHF 100 to 200 depending on year of birth; transitional generation of 15 years; from the 16th year of age the amount is determined by the Federal Council
Financing through pay-as-you-go system: An additional 0.5% on the pensionable AHV/AVS salary to be paid by employer and employee (whereof the employer must pay at least half of the contributions)
|Maintaining the level of retirement benefits; compensation for the reduction in the conversion rate|
||Reduction from CHF 24'885 today to CHF 12'443
||Higher insured salaries and better protection for insured persons with lower salaries (part-time employees and women)|
||Adjustment of the retirement credits:
25-34: 9% (previously: 7%)
35-45: 9% (previously: 10%)
45-54: 14% (previously: 15%)
55-65: 14% (previously: 18%)
|Increasing career opportunities for older employees (reducing the young/old gap; reducing salary cost for older employees)
Evaluation of the preliminary draft law
It is to appreciate that the Federal Council, following the defeat in the vote on the pension reform 2020, makes a further attempt to adapt the legal framework to the changed demographic and financial market conditions, and is in particular once again addressing the reduction of the minimum conversion rate in the mandatory area.
The reduction of the BVG/LPP conversion rate and the pension supplement intended to compensate for this reduction in the conversion rate are undoubtedly giving rise to discussion and controversy. This mainly due to the following reasons:
- In actuarial terms, a conversion rate of 6% is already outdated, which is reflected in the fact that the conversion rates for some (all-inclusive (i.e. funds which offer mandatory and over-mandatory insurance cover)) pension funds are already below 6% or even below 5%.
- The pension supplement will be the same for all entitled retired persons of a transitional generation, irrespective of the pension amount and the portion of the pension exceeding the mandatory BVG/LPP portion.
- It is financed by additional employee and employer contributions, leading to the introducing a new (non-systemic) pay-as-you-go component from young to old and from pension schemes with a favourable age structure to the others.
- Central financing via the Security Fund also proves to be administratively complex - both for the pension funds and the Security Fund. This is because the additional contribution to the financing of the pension supplement is levied by the pension fund and is based on the income subject to AHV/AVS, which (in addition to the salary insured under the pension fund regulations and, under certain circumstances, the salary in accordance with the BVG/LPP mandatory) requires the employer to report an additional salary. The Security Fund, in turn, acts as a central distribution point - it requests the contributions from the pension funds and pays out the planned pension supplements to the pension funds.
The changes to the coordination deduction and the changes to the retirement credits in the BVG/LPP are expected to give less reason for discussion, as they address topics which, based on the discussions held so far, appear to be able to gain a majority.
In summary, the draft law will partially reduce the existing solidarity due to the redistribution from active insured persons to retired persons and replace it with a new solidarity, which in turn will benefit future pensioners. It remains to be seen to what extent the consultation procedure will contribute to finding an optimal balance between a compromise and a long-term solution.
- On 13 December 2019, the Federal Council sent the BVG/LPP reform for consultation until 27 March 2020.
- The proposed reform should secure retirement benefits, strengthen financing and improve insurance for part-time employees.
- The main changes relate to the reduction of the BVG/LPP conversion rate, the pension supplement intended to compensate for this reduction in the conversion rate, the reduction of the coordination deduction and the adjustment of the retirement credits.
- As a result of the reallocation from active insured persons to retired persons, previous solidarity will be partially reduced and replaced by new solidarity, which in turn will benefit future retired persons.