LPP reform: What's at stake for the future of your pension?
On September 22nd, Swiss citizens will be asked to vote on a major reform of their occupational pension scheme, known as the reform of the BVG in German or LPP in French. This project aims to adapt the 2nd pillar to current economic conditions, and is at the centre of much debate. While some believe it is essential to guarantee the sustainability of future pensions, others see it as a threat to working people's pensions. According to a survey by the newspaper Le Temps, more than half the population is completely undecided about their choice, while only 12% express a conviction. The plan has been criticised for being too complex, making it difficult to accurately assess its future impact on personal pensions. In this article, we provide an overview of the key aspects of this reform.
Who will be affected by the reform?
This reform essentially concerns pension funds that provide minimum benefits. Retirees and working people affiliated to a pension fund offering an improved plan will not be directly affected. Fortunately, many employers choose to offer their employees plans that exceed the legal requirements, enabling pension funds to maintain sound management without resorting to a referendum.
What implications will this have
1. Reduction in the conversion rate: The minimum conversion rate will fall from 6.8% to 6%. This measure is designed to strengthen the financial health of pension funds, which are being affected by rising life expectancy. Despite the turbulence in the financial markets, investment returns have enabled the funds to continue to be managed conservatively.
2. Additional pension: A pension top-up is planned for the 15 years following introduction of the reform, to compensate for the reduction in the conversion rate for people close to retirement. This supplement, the cost of which is estimated at about CHF 800 million, will be financed by the Guarantee Fund, which will be financed by contributions from pension funds.
3. Lower entry threshold: The entry threshold will be lowered from CHF 22,050 to CHF 19,845, enabling more people to become eligible.
4. Adjustment of salary bonuses: Young people will see their net salary fall, while people aged 55 and over will benefit from an improvement. The aim is to reduce age-related inequalities, although this measure could be detrimental to savers whose salaries increase over the course of their careers.
5. Increase in insured salary: The insured salary will then be determined by taking gross salary less a coordination deduction of 20% of gross salary, instead of CHF 25,725. This change will lead to an increase in contributions for those concerned.
Specific examples
Case 1: A 25-year-old with a gross salary of CHF 60,000 throughout his/her career, affiliated to a pension fund with a minimum statutory plan.
- Current plan: Estimated capital of CHF 211,701.15 at retirement, with an annual pension of CHF 14,395.70. Total contributions over 40 years: CHF 171,375.
- LPP/BVG reform: Estimated capital of CHF 278,550.60 at retirement, with an annual pension of CHF 16,713.05. Total contributions over 40 years: CHF 220,800.
Case 2: A 55-year-old with a gross salary of CHF 90,000 until retirement at age 65, affiliated to a plan with the legal minimum and a current pension capital of CHF 100,000.
- Current plan: Estimated capital of CHF 233,026.85, with an annual pension of CHF 15,845.85. Total contributions over 10 years: CHF 112,455.
- LPP/BVG reform: Estimated capital of CHF 198,784, with an annual pension of CHF 11,927.05 and a pension supplement of CHF 1,800 per year. Total contributions over 10 years: CHF 98,784.
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