On 24 September 2017, Swiss voters decisively rejected the “2020 Pension Reform” package. The increase in value-added tax (VAT) to help finance the AHV reform also narrowly failed to win the necessary majority.
Clearly, the proposed package of reforms wasn’t perfect. But it would have been a small step in the right direction. It took the Federal Council and Parliament seven years to present the package to the people. It will now be some time before a new bill can be put to the vote, so the problems/challenges remain. The big question is what is going to happen in the months and years until a reform is pushed through?
AHV: According to forecasts, the AHV’s revenue and expenditure account will steadily deteriorate in the coming years, with reserves gradually being eaten up. As the strain is set to increase more quickly here than in the second pillar, it can be assumed that a reform of the AHV on its own will be pursued in the near term.
Second pillar: The statutory minimum conversion rate is and remains mathematically flawed and its enshrinement in law inappropriate. But as most pension funds in Switzerland are so-called all-inclusive funds and insure more than the statutory minimum, they are able to adjust their funding and benefits according to objective criteria. Most of these funds have already done this. Funds that insure only the legally required minimum will need to raise additional contributions in order to cover the steady rise in pension losses. These funds are increasingly becoming pay-as-you-go schemes, the most prominent examples of which are the plans offered by life insurance companies. As they will need to increase their risk contributions significantly, they will become increasingly unattractive on the price front. Generally, the performance parameters of pension funds depend primarily on income from investments, whether realised or prospective. If insured persons intend to continue retiring at 64/65 in the future, they will need either to pay more into their schemes or to accept lower pensions.