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Higher Swiss pensions to be funded with higher tax

Summary:
On 3 March 2024, a majority of Swiss voters accepted a plan to increase the state pension by 1/12th (8.3%) – an extra 13th month of pension will be paid from 2026. Organisers of the vote claimed pension finances were in good shape, implying there was money to fund it. However, there wasn’t. This week the Federal Council presented a plan to raise taxes to pay for the increase, reported RTS. Photo by Andrea Piacquadio on Pexels.comSwiss state pension funding currently looks fine. There are healthy reserves and there is more money coming in than departing. However, when a forecast is done that includes the rapidly accelerating number of pensioners, the numbers look grim, even before the recent decision by voters. The Federal Council, which is well aware of these forecasts, has to find

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On 3 March 2024, a majority of Swiss voters accepted a plan to increase the state pension by 1/12th (8.3%) – an extra 13th month of pension will be paid from 2026. Organisers of the vote claimed pension finances were in good shape, implying there was money to fund it. However, there wasn’t. This week the Federal Council presented a plan to raise taxes to pay for the increase, reported RTS.

Higher Swiss pensions to be funded with higher tax
Photo by Andrea Piacquadio on Pexels.com

Swiss state pension funding currently looks fine. There are healthy reserves and there is more money coming in than departing. However, when a forecast is done that includes the rapidly accelerating number of pensioners, the numbers look grim, even before the recent decision by voters.

The Federal Council, which is well aware of these forecasts, has to find the money somewhere. This week, it announced a plan to increase taxes. It plans to fund the new gap by raising payroll taxes by 0.8 percentage points or a mix of a payroll tax rise of 0.5 percentage points plus a VAT hike of 0.4 percentage points.

If payroll taxes rise by 0.8 percentage points it will potentially be equivalent to a nearly 1% cut in pay. This will have most impact on young people. People close to retirement will suffer the pay cut for less time before benefitting from the 8.3% rise in pension payments. Many young people on the other hand will pay out far more incrementally than they receive in extra pension, leaving them out of pocket.

The varient with higher VAT would be less of a wealth transfer from the young to the old. Pensioners continue to pay VAT over their full lifetimes, unlike extra payroll taxes that end at retirement.

The government will need to decide on the exact formulation of tax hikes between now and the beginning of 2026 when the pension increases come into effect.

More on this:
RTS article (in French) – Take a 5 minute French test now

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