On 28 September, Parliament adopted the Federal Act on Tax Reform and AHV Financing (TRAF). The bill contains measures that will have a positive impact on the AHV accounts. That will influence the future AHV funding requirements and will thus affect the planned reform to stabilise the AHV (AHV 21) as well.
AHV financing has deteriorated noticeably since 2014. The receipts are no longer sufficient to finance current pensions. Last year, the pay-as-you-go deficit – the difference between expenditure and the receipts from contributions by insured persons and the public sector – amounted to CHF 1.039 billion.
This situation will deteriorate further with the retirement of the baby boomers from 2020 onwards. The accumulated pay-as-you-go deficit will reach approximately CHF 43 billion between 2021 and 2030. The AHV lacks around CHF 53 billion in order to keep the compensation fund at the level of one year's expenditure until 2030, as provided for by law.
AHV 21 reform
To ensure that the financing of pensions can be guaranteed also for the future, the Federal Council adopted a bill to stabilise the AHV (AHV 21) and submitted it for consultation on 28 June. AHV 21 aims to preserve retirement provision benefit levels and to safeguard the financial equilibrium of the AHV. To this end, the Federal Council is proposing measures on the expenditure side, e.g. harmonising the retirement age at 65 for women and men, as well as additional receipts. Specifically, there are plans to raise VAT by a maximum of 1.5 percentage points from 2021.
Parliament has meanwhile discussed the Federal Council's tax proposal 2017 and also supplemented it with measures to finance the AHV. Parliament thereby wished to create social equality by offsetting the expected tax relief with higher contributions to AHV financing. The Federal Act on Tax Reform and AHV Financing (TRAF), passed by Parliament on 28 September 2018, now contains three components from which the AHV would benefit financially.
- Increase of 0.3 percentage points in the contribution rate (0.15 percentage points each for employees and employers). In 2020, the additional receipts for the AHV correspond to around CHF 1.2 billion.
- Full allocation to the AHV of the 1 percentage point of VAT earmarked for demographic change which has been levied since 1999. At present, 17% of this amount does not go directly to the AHV, but to the Confederation, which uses it to finance its share of AHV expenditure. In 2020, the additional receipts for the AHV correspond to around CHF 520 million.
- Increase in the federal contribution to the AHV from 19.55% at present to 20.2% of AHV expenditure. In 2020, the additional receipts for the AHV correspond to around CHF 300 million.
Effects on AHV 21
These measures would relieve the AHV accounts by around CHF 2 billion in 2020. From today's perspective, the AHV funding requirements through to 2030 would be reduced from around CHF 53 billion to around CHF 23 billion.
This would have an impact on the proposal to stabilise the AHV. If the Federal Act on Tax Reform and AHV Financing (TRAF) is adopted in the referendum of 19 May 2019, the Federal Council will re-evaluate the AHV funding requirements in the context of the dispatch on AHV 21. The increase in VAT would be reduced to the extent that TRAF provides additional receipts. As things currently stand, the VAT increase could be reduced from the 1.5 percentage points provided for in the consultation to 0.7 percentage points. In any case, the AHV reform would remain urgent and necessary to stabilise the AHV financially even if the TRAF proposal were adopted.
Federal Social Insurance Office FSIO
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Last modification 19.02.2019