BVG revision - What are we voting on?

In March 2023, Parliament adopted the revision of the occupational benefit scheme (Federal Law on Occupational Retirement, Survivors' and Disability Pension Plans (BVG), reform of the occupational benefit scheme, amendment of 17 March 2023, BBl 2023 785). The plan is to reduce the minimum conversion rate for calculating pensions. At the same time, better insurance for part-time employees and workers with lower incomes is to be implemented. Women in part-time employment in particular should benefit from this. A referendum was held against the bill, which is why it will be put to a popular vote this year.

At the centre of the changes is the reduction of the minimum conversion rate from the current 6.8 to 6 percent (Art. 14 para. 2, 2bis and 3 nBVG). As the conversion rate determines the level of pensions, the statutory minimum pensions would be reduced if the referendum votes in favour: for every CHF 100,000 of retirement assets, the pension funds would have to pay a minimum pension of CHF 6,000 instead of the current CHF 6,800. The pension reduction would not affect pensioners who are already drawing an occupational pension at the time the revision comes into force or insured persons who are insured beyond the minimum benefits and whose pensions are not dependent on the statutory conversion rate.

The reasons given for the reduction are increasing life expectancy and developments on the financial markets with lower investment returns. The current conversion rate of 6.8 per cent presupposes an investment return of 5 per cent, which cannot be realised in the longer term in view of the current financial market situation (BBl 2020 9809, p. 9811). It is becoming increasingly difficult for pension funds that only provide mandatory or only low non-mandatory benefits to finance the guaranteed minimum benefits.

The reduction in the conversion rate only affects mandatory occupational benefits schemes. Here, the law defines the minimum conversion rate. Many pension funds also insure the extra-mandatory scheme by including benefits in their regulations that exceed the statutory minimum benefits (so-called enveloping pension funds). In this case, the authority to set the conversion rate lies with the highest governing body of the pension fund. Most pension funds (around 83 per cent) have adjusted the conversion rate in their regulations in recent years and in some cases massively reduced it. The pensions of most insured persons - particularly in the area of retirement pensions - are already calculated at a conversion rate of less than 6 per cent. This is despite the fact that the statutory minimum pensions continue to be calculated at a conversion rate of 6.8 per cent. The reduction in the statutory minimum conversion rate will therefore not have any impact on the mandatory and extra-mandatory pension schemes and their insured members.

A reduction in the statutory conversion rate would lead to a reduction in the mandatory minimum pensions in accordance with the BVG. In order to cushion this process, the proposal provides for various equalisation measures with the aim of maintaining the current level of pensions and at the same time improving occupational benefits for insured persons with lower incomes and part-time and multiple employees. This is to be achieved by paying a pension supplement to future pensioners of a transitional generation of 15 years. In addition, the retirement assets that are built up until retirement age are to be increased. Specifically, the following equalisation measures are planned:

Adjustment of the entry threshold (Art. 2 para. 1 and 7 para. 1 nBVG)

The entry threshold would be adjusted from the current CHF 22,050 to CHF 19,845. The new regulation would affect 100,000 employees who would now be compulsorily insured (70,000) or for whom a higher income would be insured (30,000; see 20.089 Reform BVG 21: Overview table of equalisation models).

Reduction of the coordination deduction (Art. 8 para. 1 and 2 nBVG)

The coordination deduction is a key factor in occupational benefits insurance. If the coordination deduction is adjusted, this not only affects the amount of the salary to be insured, but also the retirement credits and the contributions of employees and employers. If the coordination deduction is reduced, the salary to be insured increases and with it the retirement credits. This means that more retirement assets can be saved, which in turn results in higher pensions. Art. 8 para. 1 (new) provides for a coordination deduction of 20 per cent of the AHV salary up to CHF 88,200 instead of the fixed deduction of CHF 25,725 (as at 1 January 2013). This means that the coordination deduction would now be between CHF 3,969 and a maximum of CHF 17,640.

Adjustment of the retirement credit rates (Art. 16 nBVG)

The retirement credits are calculated as a percentage of the coordinated salary. The proposal envisages adjusting and simplifying the rates for old-age credits. Although the new credit rates would be lower overall than the previous ones, they would be calculated on a higher insured salary thanks to a lower coordination deduction.

Supplement to the retirement and disability pension for persons of the transitional generation (Art. 47b, 47c, 47d, 47e and 47f nBVG):

Finally, to compensate for the reduction in the conversion rate, the bill provides for lifelong compensation for the transitional generation. This is intended to prevent lower retirement and disability pensions in the mandatory occupational pension scheme. The so-called pension supplement is to be paid to all persons whose entitlement to a retirement and disability pension from the occupational pension scheme arises after the BVG revision comes into force. People from a transitional generation of 15 cohorts would benefit from a pension supplement. If the BVG reform came into force on 1 January 2025, this would affect those born between 1961 and 1975. This would be the case if those affected receive at least 50 per cent of their retirement assets in the form of a pension and have pension assets of no more than CHF 441,000 at the time they claim their retirement pension.

The previous law would continue to apply to the conversion rate for retirement, survivors' and disability pensions that are running at the time the BVG revision comes into force. Insured persons who are already drawing a retirement or disability pension at the time the revision comes into force would therefore not be entitled to a pension supplement in accordance with Art. 47c and Art. 47d (new).