Swiss lawmakers have backed an alternative proposal to reform the second pillar of the pension system, partially deciding against the model pitched by the social partners and backed by the cabinet.

In a second reading of the draft reform, dubbed BVG 21, the social security and health committee of the National Council (SGK-N), the lower house of parliament, supported a measure that foresees the use of pension funds’ reserves to compensate for a reduction of the minimum conversion rate, which determines pension pay-outs, from the current 6.8% to 6.0%.

Under the committee’s proposal, another part of the amount of the compensation for the cuts in pension pay-outs will be financed through contributions on the part of annual salary that comes in for mandatory workplace pensions coverage.

ASIP, the Swiss pension fund association, has been advocating for a model, called Mittelweg, to bypass redistribution mechanisms included in the social partners’ proposal.

The original idea of the social partners – Swiss Employers’ Association (SAV), Swiss Trade Union Federation (SGB) and Travail.Suisse – saw the pension supplement financed with a contribution of 0.5% on wages.

The SGK-N kept the amount of the compensation unchanged in the second reading of the reform proposals.

Individuals earning within, or close to, the salary range for mandatory occupational pensions provision, now at CHF21,510-86,040 yearly, will receive a pension supplement. This will be for a transitional period of 15 cohorts.

The first five cohorts after the reform comes into effect will receive CHF2,400 per year, the next five CHF1,800 per year, and the last five CHF1,200 per year.

According to SGK-N, its new model would cost around CHF800m per year based on initial estimates, as opposed to annual costs of CHF1.7bn per year of the Federal Council’s plan.

In the second reading, the SGK-N has also decided to reduce the threshold to enter the mandatory part of the occupational pension insurance from a minimum wage of CHF21,510 per year to CHF12,548.

This would ensure that also employees with part-time jobs or lower incomes are covered by occupational pensions, according to the committee.

With 17 votes against 8, the SGK-N voted in favour of saving for old age to begin from the age of 20 instead of 25. The starting age to save for pensions was set at 21 in the first reading.

The committee confirmed in the second reading the decision to halve the deduction used to coordinate first and second pillar pensions, now at CHF25,095, and for pension fund contributions to be levied on a larger part of salary, namely the part between CHF12,548 and CHF86,040.

The contribution to pension funds would amount to 9% of the coordinated salary for employees aged between 20 and 44 years old, and 14% for those aged over 45 years old.

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