The Swiss government will temporarily cut public funds to the first pillar pension (AHV) as a result of increasing costs to support the first pillar social security system following a referendum in favour of the 13th month of pension, it announced yesterday.

The cabinet plans to cut funds from 2026, when the first 13th month of pension will be paid, until another reform comes into force, it added.

The government announced yesterday that it will have to contribute with CHF840m (€862m) to start the 13th month of pension, a measure that will cost a total of CHF4.2bn in 2026, going up to CHF5bn by 2031.

In order not to place an additional burden on the federal budget, the Federal Council will cut its share of contributions to the first pillar funds to 18.7% from 1 January 2026, from the current 20.2%, it added.

To offset a reduction of public funds, the cabinet plans to either increase contributions or value-added tax (VAT), or both. It is also considering rebalancing future lack of funds with money from the three AVH funds, it said.

According to the plan, wage contributions might increase by 0.2 percentage points, and both contributions and VAT by 0.1 and 0.2 percentage points, respectively, the government said, to prevent the first pillar funds AHV, IV and EO funds from being placed under additional strain due to the lower public funding.

Switzerland will pay an additional month of pension from 2026 once a year. It will finance the measure by increasing wage contributions by 0.8 percentage points, or increasing wage contributions by 0.5 and VAT by 0.4 percentage points, it said.

Even without the additional costs for the 13th month of pension, the first pillar AHV faces great challenges, with a deficit expected from 2030 as a result of an increasing number of retirees, and life expectancy.

For that reason, the Parliament has commissioned the Federal Council to design a further reform, by 2026, for the period after 2030, which could lead to an increase to the retirement age.

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