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Pensions: Opportunity for a Bolder Reform

The 2020 Pension Reform Package failed to win over the majority of voters. It did not meet the central objective of guaranteeing sustainable pension funding. The “no” vote has upped the pressure for reform, and it is to be hoped that Parliament will be in a position to pick up the right aspects of the failed reform package and take them forward. 

Swiss voters on Sunday rejected the Pensions Reform 2020 by a majority of 52.7 percent. Although the various political forces may attribute the verdict to their own arguments and take credit for the outcome, fact is that this proposal does not meet the central objective of sustainable pension funding and instead would at best have given the system some breathing space.

The attempt to jointly shore up the first and second pillars ultimately culminated in an elaborate proposal whose impact on those affected was difficult to gauge and showed numerous flaws.

Align Retirement Age with Life Expectancy

The demographic parameters and resulting pension funding problems are nothing new. By international standards, Switzerland is already one of the countries with the highest life expectancy figures and lowest statutory retirement ages – and therefore one of the longest pension entitlement periods.

A retirement age of 67 is already a done deal in a lot of OECD states, and countries such as the Netherlands, Denmark, Italy, and the UK have decided to link the retirement age to the development of life expectancy. Measured against these reform moves, Switzerland has allowed itself to fall significantly behind.

It is already the case that the AHV's expenditures are greater than its revenues through contributions from insured people, employers, and the public sector. Projections show that in the absence of counter-measures the deficit will increase to over CHF 7 billion by 2030. The AHV fund would be exhausted by 2031, and it would therefore no longer be possible to guarantee the payment of current pensions.

Keep Moving in the Right Direction

The "no" vote has upped the pressure for reform, and it is to be hoped that Parliament will be in a position to pick up the correct aspects of the failed reform and take them forward. The harmonization of the retirement age for women with that of men, reduction in the minimum conversion rate, and adjustment of the coordination deduction in line with today's new forms of working within the employee benefits insurance system did go in the right direction – if too tentatively.

On the other hand, other aspects such as the false incentives in relation to a more flexible retirement age and one-size-fits-all AHV surcharge of 70 Swiss francs should be abandoned. Judging by initial reactions on Referendum Sunday, the conclusion must be that the next attempt at reform will likely bring separate proposals for the first and second pillars.

The opportunity for a new, consensus-based package would increase if Swiss politicians had the courage to tell voters the truth and make clear that pension funding won't be a victimless process. In a society that is living longer and longer, there is one obvious option: an increase in the retirement age.