Swiss House Approves VAT Hike, Rejects Pension Funding Mix.

Switzerland has taken a major step in pension reform after the Swiss House of Representatives approved a Value Added Tax (VAT) increase to help finance the 13th payment of the old-age and survivors’ pension (AHV/AVS). However, lawmakers rejected a proposal for mixed financing that would have also increased employee contributions.

The VAT increase was approved by a vote of 104 to 87, showing clear support for funding the pension system through taxation rather than payroll deductions. In contrast, a closely contested vote rejected changes to salaries and employee contributions by 98 to 96, with a small number of abstentions.

During parliamentary debates, several political groups including the Swiss People’s Party, the Radical-Liberal Party, and the Liberal-Green Party supported the VAT-only funding model. They argued that relying on consumption tax is a more stable and transparent way to secure pension financing.

Opposition parties criticized the decision, warning that rejecting a mixed funding approach places a heavier burden on consumers and may indirectly push future discussions toward increasing the retirement age. The debate reflects ongoing political tensions in Switzerland over how to sustain its aging population and social security system.

Interior Minister Elisabeth Baume-Schneider clarified that the funding changes will not take effect until 2028. Until then, Switzerland is expected to cover two pension payments without secured financing, costing around CHF 9 billion. She emphasized that despite financial pressure, the 13th pension payment will begin as scheduled in December.

Both chambers of the Swiss Parliament are expected to confirm the decision in a final vote on Friday, which will determine the future direction of Switzerland’s pension funding system.