The minimum conversion rate (Umwandlungssatz) in Switzerland’s mandatory second-pillar pension system is set to be cut from 6.8% to 6% over the next years after the move was approved in the lower house of Parliament on Wednesday.

This part of the draft for the Altersvorsorge 2020 (AV2020) pension reform package – presented to the Nationalrat, the larger house of Parliament, by the Ständerat, the upper chamber, a few months ago – enjoyed majority support among MPs.

The debate on Wednesday was briefer than many analysts expected, but it brought some amendments to the draft, which the Ständerat must now discuss again.

Interior minister Alain Berset, however, said the draft “still needs work”, while Switzerland’s unions have argued that the Nationalrat’s proposal would fail to win a majority, “as workers cannot accept it”.

One of the major points where MPs disagreed with members of the Ständerat was on how to account for the 12% drop in future second-pillar pensions resulting from lowering the conversion rate.

While the Ständerat wants to increase first-pillar pensions from the state AHV/AVS system, the conservative majority in the larger chamber voted against this.

Conservative politicians referred to the public’s recent rejection of a state pension hike in a referendum on the AHV-plus on Sunday.

Instead, conservatives want second-pillar pension cuts to be offset solely within workplace pensions.

One change would be to slash the so-called Koordinationsabzug, used to calculate contributions into the second pillar by cross-referencing them with first-pillar pensions.

If it is cut, lower-income earners will have to pay into the second pillar, increasing pension spending for small and medium-sized enterprises (SMEs) but also giving more people the opportunity to save.

The Nationalrat’s social committee added a new proposal to “de-politicise” technical parameters like the conversion rate or the minimum interest rate.

It wants to introduce automatic calculation algorithms rather than have these rates set by commissions and politicians.

The Nationalrat also surprised many with a new proposal to help finance the first-pillar AHV.

It wants to introduce an automatic mechanism that would increase the pension age to 67 in lock-step with VAT, should the AHV lack the necessary funds.

In contrast to the Ständerat and the Swiss government (the Bundesrat), which had drafted the first reform proposal more than two years ago, the Nationalrat only wants to raise VAT by 60 basis points to help fund the AHV.

The Ständerat proposed an increase of 100bps, the government, 150bps.

The Nationalrat agreed with the Ständerat to raise the statutory retirement age for women to that of men (65), and retirement will be made more flexible between the ages of 62 and 70.

The new draft will now be sent back to the Ständerat before it returns to the Nationalrat for the lower chamber’s December session.

For more on Swiss pension reform, see the November issue of IPE magazine

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