⏱ 6 min
The AHV 21 reform (of old age and survivors’ insurance, AHV) will enter into force on 1 January 2024. The new provisions introduced in connection with AHV 21 will require employers to make changes in various areas.
This article begins by addressing the most important points of the AHV 21 reform before highlighting essential and potential areas of action for employers. It also discusses opportunities for companies to remain attractive on the labour market and to counter the possible shortage of skilled workers in future.
The AHV 21 reform was driven by increased life expectancy and demographic trends. Employees face growing pressure in the labour market as work habits change, the baby boomer generation retires, skilled workers migrate to other sectors of the economy, and other developments unfold. In this environment, targeted and individualized resource planning to secure expertise and skilled workers is a vital success factor.
A brief summary of the main AHV changes
Same retirement age/reference age for women and men
AHV 21 provides for a retirement age of 65 for women and men from 2028. To this end, the retirement age for women will be gradually increased starting in 2025. The term “reference age” replaces the term “retirement age”.
Compensatory measures for women born between 1961 and 1969
Women born between 1961 and 1969 belong to the transitional generation of AHV 21. Compensatory measures have been agreed to cushion the impact of the increase in the reference age for them (for more information, see the article What does the «Yes» to AHV 21 stand for?).
Flexible pension withdrawal
Under AHV 21, pension withdrawals will be made even more flexible. It is now also possible to draw pensions partially in advance or to defer them:
| Example of early withdrawal | Current situation (early withdrawal of pension, two years) | Possible situation under AHV 21 (partial early withdrawal (50%), 1.5 years) | Possible situation under AHV 21 (partial early withdrawal, 18 months (25%)/12 months (50%)) * |
| Pension | AHV pension with 13.6% discount | Pension (50 %) with 10.2% discount | Pension for 18 months with a reduction of 10.2% (25% early withdrawal) and for 12 months with a reduction of 6.8% (50% early withdrawal) |
| Salary (i.e. remaining in work) ** |
No longer in work | 50% workload until reference age | 75% workload for the first six months of withdrawal, then reduction to 50% until the reference age is reached |
* The partial withdrawal can be structured and adjusted variably during the 24 months prior to reaching the reference age.
** Employees remain in the company and meet the compulsory AHV contribution obligation until reaching the reference age.
| Example of deferral | Current situation (deferral, two years) | Possible situation under AHV 21 (partial deferral (50%), two years) | Possible situation under AHV 21 (preliminary decision to postpone the whole pension for five years, after two years decision changed and pension of 40% withdrawn)* |
| Pension | AHV pension (100%) with supplement of 10.8% | From age 65 pension (50%) without surcharge, from age 67 pension (50%) with supplement of 10.8% | At age 65 notification of full pension deferral, from age 67 withdraw 40% pension with 10.8% supplement, from age 70 additional 60% pension with supplement of 31.5% |
| Salary | No longer in work | Workload of 50% until age 67 | Workload of 100% until age 67, thereafter 60% until age 70 |
* Deferral can be made variable. An initial full deferral can be adjusted subsequently.
The examples show how AHV 21 enables flexible retirement from working life. For employers, this offers opportunities to transfer crucial expertise systematically and, if necessary, to retain it in the company for longer.
Continuing to work beyond the age of 65 may be worthwhile
Anyone who continues to work after reaching the reference age does not pay any AHV contributions on income of up to 1,400 Swiss francs per month. If earned income exceeds this exemption threshold, any amount over 1,400 Swiss francs is subject to contributions. These contributions are not included in the calculation of the pension, i.e. they do not lead to a higher retirement pension.
From 2024, continuing to work after retirement age will become more attractive from an AHV perspective.
The amount exempt from contributions will remain unchanged, although working people of retirement age will have the option of waiving their allowance. AHV contributions earned in this way can be used to close any contribution gaps or to increase the average income for pension calculation purposes. In both cases, this results in an improvement of the original AHV benefits, unless a full maximum pension can be expected anyway.
| Amount in CHF | Current situation (after retirement age) |
Situation under AHV 21 with exempt allowance (after reference age) | Situation under AHV 21 with waiver of exempt allowance (after reference age) |
| Salary (gross) | 3'500 | 3'500 | 3'500 |
| Exempt allowance | 1'400 | 1'400* | 0* |
| Amount subject to AHV contributions | 2'100 | 2'100 | 3'500 |
* Employees must indicate before their first salary payment whether the AHV allowance should be taken into account or not. A change is only possible as of the next calendar year (January).
Once the reference age has been reached, it is possible to request a recalculation of the pension from the compensation office. Newly acquired contributions and periods of employment after the reference age are then taken into account. For example, gaps in contributions before the reference age can be eliminated or low average incomes can be increased. Both of these can lead to higher monthly pensions. Depending on the individual situation, it may or may not be worth waiving the pensioner allowance for the amount exempt from contributions.
Opportunities to increase attractiveness on the labour market thanks to AHV 21
From 2024, employees will have various options under pillar 1 to flexibly structure the transition from working life to retirement. To maximize the desired effect, further adjustments are required in the other areas of the pension system. This process will require cooperation with employers.
AHV 21 will be challenging for employers in various respects. Making the reference age more flexible will increase the complexity of personnel planning in the future. However, in view of the shortage of skilled workers and demographic trends, this is also exactly where opportunities may lie.
Necessary adjustments in various areas are outlined in the following. These changes can have a positive impact on future workforce planning. Moreover, the measures do not just affect employees of the baby boomer generation; the focus is on employees of all age groups. This makes the company more attractive to all employees and avoids potential generational conflicts.
Personnel regulations and employment contracts
Companies define their working relationships with employees in individual contracts or in generally applicable personnel regulations. The changes arising from AHV 21 also affect these documents. So, it is an opportunity to review and update the current agreements.
If fixed ages (e.g. retirement at 64) are mentioned in these documents, they must be aligned with the new legal requirements. It is advisable not to mention fixed ages, annual figures or percentages. Ideally, these should be replaced with impersonal/open details (e.g. reference age).
Individual agreements regarding social security in contracts or regulations should also be adapted to reflect the requirements of AHV 21 where necessary.
Options and conditions for part-time work, early retirement and continued work beyond the reference age should be geared towards the company and set out and governed in a suitable form.
Occupational pension plans (pillar 2)
AHV 21 also has an impact on pillar 2. Regulations, pension plans and individual affiliation agreements must be examined to determine any need for adjustment or optimization. Points that refer directly to pillar 1, e.g. AHV age, should be replaced by the term «reference age».
- Flexible retirement and the pension fund
Occupational pension plans already offer various flexible solutions for early withdrawal of benefits. According to the Federal Act on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG), benefits can already be drawn from the age of 58 if the regulations provide for this. This more generous leeway compared to pillar 1 should be maintained, also because benefits from the occupational pension plan can be drawn as a pension or as a lump sum. Particularly in the case of lump-sum withdrawals, it can make sense to stagger withdrawals if other lump-sum benefits are available. Tax burdens can be planned in advance by actively directing capital flows when (partially) giving up gainful employment.
- Continued insurance in the pension fund
Do your current regulations provide for the option of continued insurance beyond the reference age? Many pension funds do not offer this solution today. Continued employment is still possible, but the BVG benefits must be drawn in this case. The regulations regarding continued employment must be amended as a matter of urgency. This offers employees with low retirement capital a chance to continue building up their pension savings.
- Consider lowering the coordination deduction
For part-time employees, the coordination deduction is decisive when it comes to increasing their retirement capital. The coordination deduction amounts to 25,725 Swiss francs per year (as of 2023). If the income earned does not exceed the BVG entry threshold of 22,750 (as of 2023), continued insurance in the second pillar after reaching the reference age is not attractive (see Changes in social security and salary 2023, available in German and French). Against this background, it makes sense to reconsider the amount of the coordination deduction – and therefore the insured salary of the employees.
A reduction in the coordination deduction will not just benefit employees who have reached the reference age. As part-time work in general becomes more attractive, a larger group of employees will be affiliated to the pension fund and accumulate personal retirement assets accordingly.
- Next steps and stakeholder involvement
Amending and optimizing pension arrangements costs time and money. Alongside expenses for consulting an occupational benefits expert and having the regulations approved, there may be additional costs for BVG contributions. As a rule, employees and employers share the costs. If communicated appropriately, a flexible, modern pension package can be a key tool in eliminating the shortage of skilled workers.
Companies can finance some of these costs through the employer contribution reserve, if available. When preparing the annual financial statements, you should therefore check whether it makes sense and is possible to make a contribution to the employer contribution reserve. This will help smooth out profits and consequently also the tax burden.
In order to tackle this task, employers who are affiliated with an occupational pension fund should contact the relevant expert for occupational pension plans to explore together what adjustments should be made in line with AHV 21. Companies that are affiliated to a collective pension fund should contact the management of the fund to find out what options are available and make any necessary adjustments. BDO’s experts will be happy to assist you.
Plan early
It should be noted, however, that these measures take time and may require employee approval.
Companies are being called upon to act in response to the dried-up labour market, the shortage of skilled workers and the fact that the situation is becoming even more acute as the baby boomer generation enters retirement.
An attractive overall package helps to win new talent, but above all to retain proven, experienced employees. Under the current system, employees often leave a company on their 64th/65th birthday. And when they retire, expertise and quality go with them. The AHV 21 reform offers the opportunity to retain employees through flexible structuring of the retirement age. But it also allows for early, staggered retirement from the company.
Retirement planning is a very individual matter. The ideal arrangement, taking into account the legal and tax aspects, requires effective cooperation between the various departments. BDO offers holistic advice from a single source.
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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