The parliament of the Swiss Canton of Aargau has unanimously approved a series of measures to change the pension plans of the Aargauische Pensionskasse (APK), the pension fund for the employees of the canton, with the goal to maintain a certain level of member benefits.

The review of the APK decree, as the reform of the pension plans has been called, will come into force on 1 January 2024, the scheme announced yesterday.

The measures include a reduction of the ‘coordination deduction’ – Koordinationsbazug – to determine the share of wages insured under the second-pillar pension system, and an increase in contributions with the aim of securing pension benefits equalling 60% of the salary paid.

A one-off employer contribution was approved for employees over the age of 58, which covers about 1% of the members.

The contributions are adjusted in percentages so the benefit level of 60% of the salary can be achieved.

The 60% goal is set by the constitution, and also implemented by the Swiss Federal Social Insurance Office and the Swiss pension fund association ASIP. 

But pension benefits are falling because APK has gradually cut the conversion rate to calculate pension pay-outs – Umwandlungssatz – from 5.3% in 2022 to 5.0% this year.

As a result, the level of benefits continued to fall, from 58% to 55% of the insured salary, below the original level of 65%.

APK has lowered the conversion rate three times since the introduction of the defined contribution plans in 2008, following a trend observed for other pension funds in Switzerland.

With the adjustment of the coordination deduction, part-time employees and low earners are protected, the Canton said.

It added that the one-off contribution to older employees will be beneficial for older members as they would not be able to benefit from the increase in savings contributions to the same extent as younger employees.

The canton also plans to introduce contributions for people who work beyond the current retirement age of 65 to fend off the shortage of skilled workers and take into account higher life expectancy, creating incentives to continue working.

The new plans also allow for voluntary savings in the second pillar from the age of 20.

APK said in a statement that the unanimous approval by parliament of the measures to reform the pension plans testifies to the need for action on occupational pensions.

The solutions adopted are an important step towards securing the level of benefits for occupational pensions in the canton of Aargau, it added.

The latest digital edition of IPE’s magazine is now available