Wave of retirements among baby boomers: What it means for the Swiss pension system

The wave of baby boomer retirements is gathering momentum. What does that mean for younger generations?

Many workers dream of taking early retirement. From a labor market perspective, however, exactly the opposite should be made more attractive: working beyond normal retirement age. That is because the wave of baby boomers entering retirement in Switzerland is creating a distinct imbalance in retirement provision, as Credit Suisse's 2020 pension study reveals.

The new 2020 pension study, published by Credit Suisse, clearly shows that early retirement is extremely popular, but that it leads to a lifelong reduction in pension benefits. As it is, falling pensions will make early retirement affordable for fewer and fewer people in the future. The problem is being made worse by the looming wave of retirements by members of the baby boomer generation, those born between 1946 and 1964, the post-war years with high birthrates.

The pension system: We will hit a major turning point in 2023

At no point in the history of Switzerland's retirement provision system has the number of people entering retirement been higher than the number of new people entering the labor market. Since 2000, those numbers have been getting closer and closer, year after year. Very soon, probably in 2023, we will have reached that critical point. Then, the ratio will have flipped on its head, and there will be more people leaving the workforce than new ones being added.

Switzerland's pension system will become unbalanced in the next few years

The number of workers leaving will soon outweigh those entering the job market

In the next 15 years, there will be more people retiring than the number of young people joining the labor market. Without drastic countermeasures, the Swiss pension system will be tilted further out of whack.

Sources: Swiss Federal Statistical Office, Credit Suisse

Wave of retirements among baby boomers: Impact on the labor market

Starting in 2023, the annual group of young people between the ages of 20 and 25 who enter the workforce for the first time will be smaller than the group of new retirees, and that gap will grow from one year to the next. For that reason, there is a looming shortage of skilled workers on the labor market. Not every industry will be affected to the same extent. The situation will be most difficult for sectors that are already having trouble finding a sufficient number of qualified personnel today. What's more, industries that are able to benefit from solutions involving automation but only to a limited extent, such as the health-care sector, are also going to be hit hard.

Agriculture and health care are feeling a strong impact from the demographic changes.

Not every sector will be affected to the same extent

The agriculture and forestry sectors, public administration, and the transport and logistics sectors are where the highest percentages of individuals over 55 work. Baby boomer retirements will hit those sectors especially hard.

svc. = services
Sources: Swiss Federal Statistical Office (Swiss Labor Force Survey – SLFS), Credit Suisse

The 2020 pension study clearly shows early retirement makes the problem worse

The aforementioned figures and assumptions from the current pension study do not yet factor in the number of early retirements. A higher number of early retirements would move the crest of the retirement wave forward by a corresponding amount. Early retirement is a highly popular aim; at least half of workers would like to do it. And indeed, just over 50% of today's retirees managed to leave the working world behind before they reached normal retirement age. However, not all of them did so voluntarily. Nearly 25% retired early for involuntary causes, for example, operational or health reasons.

Future of retirement provision: Make working longer more attractive

While early retirement may be very desirable from a personal standpoint, it makes less sense from a labor market perspective. Continuing to work past one's normal retirement age would be one way to counteract the shortage of skilled workers that is on the horizon. To help this option gain acceptance, however, incentives would need to be created for both employees and companies. For example, a more enticing reward for deferred retirement would be conceivable. Individuals who work beyond their official date of retirement already receive a slightly higher pension. Yet this incentive is obviously not enough to convince a larger share of older employees to take their retirement later.

Comparison: Early, normal, and deferred retirement

Comparison: Early, normal, and deferred retirement

Using a teacher's income as an example reveals enormous differences in the lifelong pension between early and late retirement.

Source: Credit Suisse

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