After the vote in March 2024, the Federal Council set out to find the best way to cover the additional pension payout, without putting this financial responsibility on the active workforce.

In August, the government decided to foot the bill for the 13th pension payment by increasing the Value-Added Tax (VAT) — the flat-rate tax that is added to the cost of items you purchase.

The amount of the increase, however, was under discussion.

This week, minister Elisabeth Baume-Schneider, who is responsible for social insurance and compensation scheme, announced the VAT hike is set at 0.7 percent, which means the consumption tax will go up from the current rate of 8.1 to 8.8 percent.

She pointed out that this mode of financing is more equitable, because it means everyone will contribute to boosting the pension coffers, including the retirees themselves.

With this move, the government will collect 450 million francs to bankroll the cost of the 13th pension when it goes into effect in January 2026. 

How will higher VAT impact you?

You may think that higher VAT will have a negative impact on your finances — as this means the already high cost of living will go up even further.

Keep in mind though, that you will benefit once you retire and will receive the 13th instalment too.

And if you decide to leave Switzerland, your pension contributions go with you — a simple procedure if you are a citizen of EU /EFTA, and slightly more complicated (but doable nevertheless) if you go back to a third nation.

How much more are you likely to pay?

VAT is the extra charge added to the cost of most purchases, from food and drink to clothing.

But how much more expensive will products and services become with the 0.7-percent hike?

In August, while the Federal Council was still crunching numbers regarding the VAT increase, Frank Marty, a tax expert at the business umbrella organisation Economiesuisse, calculated price increases based on a raise of 0.5 percent. 

He concluded that “in an average household [which in Switzerland means an income of just over 80,000 francs a year], additional 0.5 percent will result in 250 francs going to VAT per year.”

If your salary exceeds the median wage, then you will likely contribute 450 francs a year, but only 200 francs if you are low-wage earner (and therefore a lower spender).

With 0.7 percent, these amounts will be slightly higher.