The Swiss government has decided to increase the country’s value-added tax (VAT) to finance the 13th month of pension – 13. AHV-Rente – instead of increasing contributions or going with a mix of the two measures.

The cabinet said the move was the “more appropriate solution” as the need of funds for the AHV is lower than expected after the financial outlook was adjusted.

A majority of stakeholders, which took part in the consultation on how to fund the 13. AHV-Rente, backed a plan combining higher contributions and higher VAT, according to the government.

The government will define in the autumn the exact extent of the VAT increase, based on the new outlook for the first pillar AHV fund, after long-term costs of the scheme were overestimated by around CHF4bn (€4.2bn), a mistake spotted while conducting checks linked to the implementation of the 13. AHV-Rente.

Increasing VAT will help to keep the finances of the AHV fund, with total assets of CHF37.82bn, the biggest of the three social security funds managed by Compenswiss (AHV, EO, and IV) in balance until 2030, the government said.

The VAT increase will cover the additional costs resulting from the introduction of the 13. AHV-Rente, together with a state contribution cut to 19.5% of AHV annual expenses, down from the current 20.2%, it added.

This means that the 100% funding level of AHV expenses is expected to be achieved in 2030. The state budget will contribute with around CHF500m in 2030 to the 13th month of pension.

The government has decided to cut the state’s contribution for the AHV despite a majority of stakeholders rejecting the plan during the consultation process, it said.

The payments of the 13th month of pension mean that the expenses of the AHV fund increase by approximately CHF4.2bn in 2026, and by CHF5bn from 2030.

The difference between the AHV fund’s income and expenses will be negative starting from 2026, when the first 13th month of pensions will be paid, although the deficit increase will slow down in the following years, according to calculations made by the Federal Social Insurance Office (FSIO).

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Luigi is IPE's Berlin-based DACH correspondent. His coverage includes regulation and the latest pensions and investments trends, and, being a native Italian, he also covers Italy’s pensions market. He has reported from Italy and Germany on international politics and business for European and US publications including USA Today, Bloomberg BNA and for the investigative magazine L’Espresso. He was previously Germany correspondent for Mergermarket covering M&A.View full Profile

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