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Switzerland to hold new referendum on financing for first-pillar system

Night view of Bern and Aare River, Switzerland

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Switzerland is set to head to the polls in May to vote on a new funding plan for the first-pillar old age insurance fund AHV/AVS.

Both houses of the Swiss parliament have agreed to divert more money from value-added tax (VAT) to the AHV/AVS and raise contribution levels, in an effort to help the state pension system cope with an increase in new retirees.

However, left-wing political parties and other lobby groups have started collecting signatures in protest against these amendments. 

Commentators have said the referendum – scheduled for 19 May 2019 – could see the AHV funding plan dismissed by voters along with connected tax bills.

One of the criticisms against the proposed amendments was that the AHV changes were linked to a bill seeking to remove tax benefits for international companies and the finance sector.

Switzerland has been under pressure from the OECD to remove unfair tax advantages by 2020 or face sanctions.

The other part of the bill concerns AHV/AVS funding, to which a larger share of money raised from VAT will be allocated.

Additionally, the contribution rate to the first pillar will be increased by 30 basis points to just over 13% of the salary.

Together these measures are expected to add another CHF2bn (€1.7bn) annually to the first pillar.

According to calculations previously run by Switzerland’s federal social security office, the AHV/AVS fund would run out of assets by the end of 2030 at the latest if no changes were made.

The Swiss Employers’ Confederation said it supported the reform but criticised the increase in contributions as they “considerably limited the scope for measures to stabilise the second pillar”.

It said it would not support any further labour-related pension measures after this bill and called on the government to increase the retirement age.

The government previously attempted to introduce additional funding for AHV/AVS in last year’s ‘Altersversorge 2020’ reform proposals. However, the complex nature of the AV2020 plan, which also involved changes to second pillar pension rules, led to the Swiss public rejecting the idea in a national referendum.

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