BVG reform: the planned changes to the second pillar at a glance

A reform of the BVG (Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans) has been under discussion for years – also in connection with the OASI 21 reform, which has now come into force. In March 2023, Parliament approved the BVG 21 reform package. A referendum was held against the planned reform. The people will decide on the reform on 22 September 2024. We show you what it’s all about.

Together with the first pillar, the second pillar of old-age provision is intended to ensure that all pensioners can maintain their accustomed standard of living in old age. In theory, the first two pillars replace around 60 percent of the final income after retirement. Occupational pension provision, also known as the pension fund or BVG, plays a key role here.

Around 1.7 million people in Switzerland received an OASIold-age pension in 2022. On average, this amounted to 1,862 francs per month for men and 1,883 francs for women. In the same year, almost 900,000 people drew a pension fund pension, which amounted to an average of 2,353 francs per month. For many recipients, the second pillar is therefore usually of greater financial importance than the first pillar.

This is especially true for men. They are more likely to receive a pension fund pension and also receive a higher pension than women. This head start is considered to be a major reason for the fact that women’s pensions are around a third lower overall, also known as the gender pension gap. Occupational benefits insurance is mandatory for all employees above the entry threshold. Self-employed persons can take out voluntary insurance. Around 4.6 million employees are currently saving retirement assets in the second pillar. The money is invested using the capital cover method, mainly in shares, bonds and real estate.

The BVG reform adopted by Parliament contains five elements that would mean changes for insured persons both in the savings phase and in the later withdrawal phase. In addition, once it comes into force, the group of persons subject to compulsory insurance would be enlarged, which would improve pension provision for people with a low income. These include part-time or multiple employees and women in particular.

Conversion rate to fall

The minimum conversion rate is used to convert the assets saved under the mandatory occupational benefit scheme into a pension. The current rate of 6.8 percent means that, for example, a credit balance of 100,000 francs results in an annual pension of 6,800 francs. This rate is to be reduced to 6 percent when the reform comes into force.

The reduction in the conversion rate reduces future pensions. To compensate for this decline, other reform measures are intended to increase the insured persons’ accumulated final retirement assets in the long term.

Lower entry threshold

The obligation to contribute to the pension fund only exists from a certain income. This entry threshold is currently 22,050 francs per year. Anyone earning less is not insured by law and does not receive a BVG pension. In order to increase the number of insured persons, this threshold is to be lowered to 19,845 francs with the reform, i.e., reduced by 10 percent. According to calculations, this will include around 100,000 more people.

Wage dependency of the coordination deduction

A so-called coordination deduction is made from the annual income. Currently, regardless of the level of employment 25,725 francs (as at 2024), for which no pillar 2 contributions are due. The deduction is intended to prevent contributions for the first and second pillar being levied on the same salary components. The coordination deduction is to be changed with the reform so that it amounts to 20 percent of the OASI compulsory salary. The insured BVG annual salary, also known as the coordinated salary, is thus fixed at 80 percent of the OASI salary (up to 88,200 francs). The amount of the specific deduction would then depend on the respective salary.

Simplification of the retirement credit rates

The retirement credit is the amount added annually to the retirement assets. The contributions are set as a percentage of the coordinated annual salary and are graduated according to age. There are currently four levels (7, 10, 15, 18 percent). Each level increases the contribution share, which employees and employers each pay half.

In future, there will only be two levels, namely 9 and 14 percent. The last increase is no longer to take place at the age of 55, but at the age of 45, which should also improve the employability of older insured persons.

Pension supplement for transitional age groups

Pension supplements are planned for the first 15 cohorts who retire after the reform comes into force. Insured persons who are entitled to this are those who have saved less than 441,000 francs in pension assets. This means that around 50% of insured persons will be able to benefit from it.

Up to a credit balance of 220,500 francs, the monthly supplements will be 200 francs (first five years), 150 francs (next five years) and 100 francs (last five years). For pension assets between 220,500 francs and 441,000 francs, reduced supplements are paid out according to assets and year of birth. No supplement is provided for pension assets of 441,000 francs or more. The supplements are guaranteed for life for those affected by this transitional generation.

The BVG reform is controversial. We list the most common arguments put forward by both supporters and opponents of the reform.

After the reform is before the reform? The AHV 21 reform will come into force in 2024, coinciding with a referendum on the second major pension reform. Whether the BVG reform, as decided by the National Council and the Council of States, will come into force will be decided in September 2024. The upcoming referendum offers a good opportunity to take a close look at your own pension provision and check for any gaps – be it in the first, second or third pillar.