The first payment of the 13th monthly state pension is scheduled for December, but Swiss voters must still approve the source of the money for this expensive project – a hike in the Value Added Tax (VAT). What happens to this plan if they don’t?
In March 2024, Swiss voters approved a move to pay an extra month’s state pension (AHV/AVS) to retirees.
As the scheme will cost 4.2 billion francs annually for the next four years and 5.4 billion by 2040, the government decided it would be financed by a higher VAT.
Concretely, the VAT – the additional charge added to the cost of most purchases – would increase by 0.4 percent.
It will go up from the current 8.1 to 8.5 percent.
This will mean an extra charge to the population of between 200 and 450 francs a year, depending on the household’s annual income.
But as this move would require a constitutional amendment, it must win a double majority of both voters and cantons.
A referendum on this matter will be held on November 29th.
The Federal Council and the majority of MPs are urging the ‘yes’ vote, while the minority of MPs are against this measure, arguing that an alternative source of financing must be found, such as raising the retirement age, so people work – and contribute to the pension fund – longer.
The ultimate decision is, however, up to the voters, and latest polls indicate that a narrow majority is against raising the VAT to finance this scheme.
Will the 13th pension be still paid if this source of funding falls through?
Yes, it will be paid regardless of the vote’s outcome, with money drawn from available pension reserves.
However, this means that these reserves will dwindle quickly, resulting in a deficit – estimated at roughly 3 to 5 billion francs within the next nine years.
That is obviously not a good situation for either the current or future AHV/AVS recipients.
The political pressure to raise the retirement age will therefore increase – even though nearly 75 percent of Swiss voters have turned down a proposal to increase the retirement age from 65 to 66 in a March 2024 referendum.
So alternate sources of financing for the 13th pension would have to be urgently found.
Back to the drawing board
It would be up to the parliament to tackle this tricky task.
It is difficult because even in wealthy Switzerland, money is not exactly lying around just waiting to be spent.
Therefore, MPs would have to examine and agree on other measures.
Possible alternatives include higher taxes or payroll contributions from the currently employed population – which the parliament had previously rejected, but which might have to be put back on the legislative table again.
The federal government might also consider spending cuts in other areas to compensate for the hole in pension funding.
Whatever solution(s) deputies will come up with would have to be put to a referendum again – the process which could logistically take months if not longer. In the meantime, while the 13th pension continues to be paid, the deficit in pension coffers would deepen.
