Swiss gov’t approves VAT increase from 2028 to fund 13th AHV pension payments

Both chambers of the Swiss parliament have reached an agreement on how to fund the 13th AHV (old-age and survivors’ insurance) pension payment. Value-added tax (VAT) will increase by 0,4 percentage points from 2028, pending voter approval.

What did the Swiss parliament agree on?

After much debate in the National Council and the Council of States, parliament passed a measure that will see the standard rate of VAT increase from 8,1 to 8,5 percent. Hotel VAT will also rise from 3,8 to 4 percent. The reduced VAT rate for everyday items, such as groceries and medicine, will stay at 2,6 percent, according to a parliamentary press release. 

The VAT increase will likely come into effect in 2028, but as it requires an amendment to the constitution, it still needs to be approved by Swiss voters. The proposal will be decided on in a national referendum on November 29, 2026.

More funds still needed

All residents of Switzerland who are over 65 years old are on track to receive the first 13th AHV pension payment in December 2026. The initiative, “For a better life in old age (Initiative for a 13th AHV pension payment)” (“Für ein besseres Leben im Alter (Initiative für eine 13. AHV-Rente)”) was passed by voters in 2024. 

Parliament was previously split over how to fund the new measure, with the National Council pushing for an increase in VAT while the Council of States preferred to increase payroll deductions. 

While the government has resolved the debate between the two funding options, increasing VAT will generate only around 1,5 billion Swiss francs per year from 2028. This amount falls short of the four to five billion francs needed annually to fund the 13th AHV payment starting in 2026. 

More measures to fund the new addition to Swiss pensions are still needed, and are expected to be included in the government’s AHV 2030 reform, currently in the consultation process, according to the government website. 

With AHV2030, the Federal Council seeks to "modernise the insurance system and adapt it to societal developments". A large number of baby boomers are set to reach retirement age soon and could put extra pressure on the country's pension system. So far, raising the retirement age from 65 is "not planned".