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Switzerland: AV2020 project rumbles on

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The federal government’s reform package is making its way through parliament but it must navigate a number of public referendums before it can see the light of day 

Regulation in summary

• The lower chamber of parliament will review the government’s reform package, which tackles the first and second pillars.
• The pensions industry is awaiting a government decree implementing revisions to the law on vesting in pension plans. 
• The government intends to launch a consultation on amendments to pension supervision by the end of the year.

An imminent referendum to increase state pensions is the latest twist in Switzerland’s long road to reform. The most important domestic legislative project affecting Swiss occupational pension funds – and the wider pensions system – is the Altersvorsorge 2020 (AV2020) reform package (known in French as prévoyance vieilleise 2020).

The AV2020 lays out comprehensive reform of the first and second-pillars to place them on a sustainable financial footing. 

The draft law was published in November 2014 and debated by the federal parliament’s upper chamber, the Ständerat (Council of States), in the autumn of last year. It adopted a modified reform proposal by a clear majority.

The AV2020 package has since been passed to the lower chamber, which is due to debate the proposal in late September. 

The goal is for the reform legislation to enter into force before 2020. Some believe it could be effective from 2018, but there are many variables, in substance and timing, that could affect the passage of the law. 

Switzerland Country facts

For one, a referendum at the end of September on changes to state pension benefits could have a bearing on the government’s reform plans, as the referendum’s target runs counter to the government’s aims.  

The referendum, a trade union initiative, has secured a vote on a 10% increase in the state pension (Alters- und Hinterlassenenversicherung, AHV), to be funded by higher contributions. The government’s reform agenda, meanwhile, is built around controlling costs and maintaining the pension level, not raising it.  

There is also the prospect of sufficient signatures being collected to hold a popular vote on an eventual final law, given opposition from the Left to plans to raise the pension age. Under Switzerland’s direct democracy rules a referendum would have to be called on an increase to VAT that is included in the government’s plans. 

The reform package includes proposals to harmonise the normal retirement age at 65 for men and women for statutory pensions and second-pillar pensions (berufliche Vorsorge, BVG). 

First-pillar-only reforms include changes to survivor benefits and increasing VAT by up to 1.5 percentage points.

The main change proposed for the second pillar is lowering the minimum conversion rate – the Umwandlungssatz, used to calculate pension payouts from accrued assets – from 6.8% to 6%.

Because this would entail a reduction in an individual’s pension, the government is pursuing compensatory measures to increase contribution rates and pensionable salary.

In developments away from the AV2020 reform campaign, in late November 2015, an amendment to the law on vesting in pension plans (FZG/LFLP) was passed and is expected to take effect from 1 January 2017. 

This transfers the burden of investment risk to plan members by waiving their right to a guaranteed minimum level of vested termination benefits if they choose the investment strategy themselves. 

These pension plans are called ‘1e’ plans, after the paragraph of the law regulating them. It states that a “low-risk strategy” must be offered from 2017, with the industry keenly awaiting an implementing decree from government.

Consultants believe 1e plans, once clarification is given, could be of interest to Swiss companies, as they could help ease longevity and investment-risk pressures. 

They could also be considered defined contribution plans and treated as such under international accounting rules, allowing companies to reduce pension liabilities on their balance sheets. 

Under the law, however, the individual choice option can only be offered to people earning CHF126,000 (€116,000) or more. 

New legislation revising pension settlements in divorce was adopted in June 2015, and the government issued the implementing regulations in June this year.

The new measures are due to come into force in 2017 and are said to be challenging for pension providers to administer. The main change is that pensions in payment can also be split in a divorce, whereas, before, only pension savings accrued before retirement were shared. 

In another regulatory development, changes to pension supervision may be forthcoming. The government is planning to table for consultation a draft bill aimed at ‘modernising’ first-pillar supervision and ‘optimising’ second-pillar supervision. 

It aims to do this by the end of the year, having in December 2015 commissioned the interior ministry to draw up a reform plan. The consultation is scheduled to close in March 2017.

The draft law could include provisions relating to the practice whereby representatives of cantonal governments sit on the boards of regional occupational pension supervisors, the subject of a dispute between the latter and the Oberaufsichtskommission (OAK), the federal supervisory authority for workplace pensions.

The government has backed the OAK’s position and wants to strengthen the independence of regional supervisory authorities from the cantons.

 Swiss retirement assets

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