On 24 September 2017 the Swiss people and cantons rejected the proposed “AV2020” reform package. The reforms covered the 1st and 2nd pillar and were proposed by Government to increase financial stability in the system and maintain current pension levels in both pillars.
The “no vote”
Details of the rejected reforms can be found in our blog from earlier this year. The headline changes were to increase the “normal” retirement age of women from 64 to 65, increasing the earliest retirement age to 62 (with exceptions), as well as changing the pillar 2 contribution rates and minimum conversion rate to 6.0% from 6.8%. Transition arrangements were to be provided to over-45s.
Overall the changes did not get enough consensus from across the diverse political, geographical and demographic landscape of Switzerland. Campaigners for a “no” vote focused on disparities between generations with young portrayed as paying for older generations retirement. Some argued that the reforms did not go far enough. The vote and subsequent rejection shows the challenge of getting complex reforms passed through a national referendum.
What next? Potential impact of the no-vote
There are no immediate actions for employers from the “no” vote as plans do not need to be changed. But the long-term challenges that triggered the reforms remain and need to be managed:
De-risking even more important – as none of the proposed reforms come into force now, employers and funds do not need to change current plans. But the cost of retirement benefits and the risk around them continues to rise. We expect many funds to continue to face significant challenges from increasing longevity and lower (expected) asset returns, so additional measures and changes to manage benefits and risks are likely needed in the mid to long term.
Providers may reconsider providing (insured) minimum plans – the minimum guaranteed conversion rate of 6.8% remains expensive for multi-employer funds and fully insured plans to provide. Some funds will reconsider their approach and potentially pull out of providing pure legal minimum plans as the financing of such benefits becomes more and more challenging without cross-subsidies. Employers with mandatory minimum plans may find getting a provider increasingly tough.
No immediate IFRS/US GAAP pension accounting impact – companies with Swiss minimum plans or split solutions (e.g. mandatory and over-mandatory benefits are covered by different plans/funds) who report their pension obligation under international accounting standards will not “gain” from the law change as there are no automatic changes to mandatory minimum benefits.
The Swiss government will be working on a new package of reforms, but there is no timeframe for this as yet. Employers may not be able to wait and may need to review their plans now to ensure they are future proof and risks are managed.
Director, People and Organisation
Tel: +41 58 792 40 13
Pensionskassen-Experte SKPE, People and Organisation
Tel. +41 58 792 11 72