The AHV 21 reform is expected to enter into force on 1 January 2024. This is how it will affect insured persons and companies.
It’s done! After 25 years of failure, a significant reform of old age and survivors' insurance (AHV) is finally to be implemented. The referendum campaign was a tough battle. Now the die is cast and it is time to accept the result and see the good.
In the article AHV 21 - curse or blessing? (available in German or French) we roughly outlined the impact of the reform. In this article, we provide more concrete information.
All of the examples below are based on the assumption that the reform will enter into force on 1 January 2024.
What does «reference age» stand for?
The term «ordinary retirement age» is being replaced by «reference age». Retirement will become more flexible, enabling more freedom in deciding when we want to retire. Nevertheless, there needs to be a term for the point in time at which an individual can draw a pension without a reduction and without a supplement. In the future this isknown as the reference age. It will be 65 years for women and men from 2028.
When will women retire in the future?
The reference age for women will be increased gradually once the reform comes into force on 1 January 2024, as follows:
||Year of birth
||64 years and 3 months
||64 years and 6 months
||64 years and 9 months
Note: The pension is paid out from the month following the birthday on which the reference age is reached.
- Susanne, born on 20 December 1960, receives the full pension from January 2025 (this would also have been the case under the old law).
- Erika, born on 13 July 1961, will receive her pension from November 2025 (instead of August 2025).
- Barbara, born on 4 April 1963, will receive her pension from February 2028 (instead of May 2027).
Which are the advantages for women?
As before, retirees can draw their old age pension a maximum of two years earlier than scheduled. However, this results in a pension reduction. These pension reductions are lower for women born between 1961 and 1969. In other words, these women can retire earlier with smaller pension losses. In addition, women with low incomes have their pensions reduced even less than women with higher incomes (see more on early withdrawal under the section «What are the advantages for men and women?»).
However, women of the cohorts set out above benefit from compensatory measures – in the form of a pension supplement – even if they don’t take early retirement. Again, the social component takes effect; women with lower incomes receive higher supplements than those with higher incomes.
Both the lower pension reduction for early withdrawal and the pension supplement without early withdrawal are available to women for life.
The reference age is not only increased for the AHV, but also for occupational pension plans. It means women who are affiliated to a pension fund save longer and have a higher retirement savings balance when they retire. At least half of this is co-financed by the employer.
Which are the advantages for men and women?
The AHV will become more flexible and can be better coordinated with occupational pension schemes in the future. As before, it is possible – now for everyone – to draw a pension between the ages of 63 and 70. However, whereas the early withdrawal was previously only possible for one or two whole years, it can now be made in any month.
The pension reduction for early withdrawal will be lower than before, making early retirement more attractive. It will be even more attractive for people with an average income of CHF 57,360 or less. For them, the pension reduction for early withdrawal will be even lower.
In return, there are also lower supplements for deferring the pension. This is because we are living longer these days and drawing a pension for longer. The supplement should correspond to the amount waived through the deferral, distributed over the estimated remaining lifetime.
Another new feature is that pensions can be partially drawn. This must amount to at least 20 and can amount to a maximum of 80 percent of the full pension. As a result, people can choose to retire between the ages of 63 and 70 in stages.
Work in old age becomes more attractive
One particularly disruptive element is now being remedied. Those who work beyond the regular retirement age enjoy a allowance of 16,800 francs per year or 1,400 francs per month, from which AHV contributions are no longer deducted. However, contributions are still due on any salary in excess of this amount – without benefit to the worker’s own pension.
Also new is that persons who reach the reference age and are still gainfully employed have the right to choose whether the AHV pensioner’s allowance should be applied or not. In addition, the contributions paid are also taken into account after reaching the reference age, both as a contribution period and for the calculation of the individual’s own pension. This enables persons with contribution gaps to fill them. People who receive less than a maximum pension due to their average income can increase it with additional contribution payments.
Example: This will be possible in the future
Peter is approaching his 63rd birthday and looks back on a successful but also exhausting career. He wants to take a step back and indulge in new hobbies. However, as long as his health holds out, he also still wants to work. This suits his employer as a successor will have time to learn the ropes and gradually take over Peter’s tasks. Peter’s plan could look like this:
- Reduction of the workload to 80 per cent at the age of 63. If necessary, he can draw a partial pension of 20 per cent.
- Reduction of the workload to 40 per cent at the age of 65. If necessary, he can draw a further partial pension of a maximum total of 60 per cent.
- He defers the rest of his pension as long as he is able and willing to work. The remaining benefits fall due at the latest at the age of 70.
Gradual retirement is not only possible with the AHV, but also with the occupational benefit scheme, depending on the regulations. Withdrawing partial pensions and lump sums has an impact on taxes. Which scenario is most attractive will depend on the specific background.
What should companies do now?
Adjustments to the salary system
The new reference age for women must be incorporated into the salary system when the reform comes into force. At reference age, employees can choose whether the pensioner’s allowance should be applied. A corresponding setting needs to be made in the salary system for the individual employee. Depending on this, more or less AHV contributions will be calculated in payroll accounting.
Adjustments to employment contracts/personnel regulations
If the employment contract provides for automatic termination of the employment relationship with reference to age, this must be adjusted for women. Contracts should also be checked to see if they contain social security provisions that will change due to the implementation of the reform.
Businesses must adapt their systems to the new VAT rates. This affects all businesses that are entered in the register of VAT payers, regardless of whether they employ staff. Also affected are any private shares that are settled with VAT.
Pension fund regulations
The provisions on the new reference age and on the options for early withdrawal and deferral mean that pension funds must adapt their regulations. Employers are obliged to inform their affiliated employees about the changes in an appropriate manner.
Regularly discuss retirement planning with employees aged over 55. Clarify the timing of any reduction in workload or retirement. Incorporate this planning into your personnel processes. BDO would be happy to support you with this.
The reform brings new pension planning opportunities for your people. Why not add in an information presentation with Q&As at your next staff event? You’ll be able to fulfil your duty to inform, impress your people with a caring service and create a basis of trust for discussions on retirement planning. We’ll be happy to support you with this.
Furthter questions about the AHV 21 reform?
Contact BDO. Our experts are available to advise you at over 30 locations throughout Switzerland.
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