Research - 03.12.2012 - 00:00 

Intergenerational contract in jeopardy

CHF 110bn – this is the amount HSG researchers estimate that the deficit in old-age provision will be by 2030. The gap will be a burden on the next generation, in particular.<br/>


4 December 2012. The amount results from a gap of CHF 55.5bn in the state old-age and survivors’ insurance (AHV) and CHF 54.7bn in professional pension schemes. The sum-total of CHF 110bn tallies exactly with the present level of federal debt: another CHF 110bn. These forecasts are part of a study analysing Switzerland’s intergenerational contract which the Institute of Insurance Economics at the University of St.Gallen has conducted.

Raising pensionable age
Under today’s framework conditions, the deficit will largely have to be borne by the generation of young contribution payers. Their financial burden will continually increase in the next 20 years. At present, for example, three AHV contribution payers support one pensioner, whereas in 2020, the ratio will be 2:1. If this development in the AHV were to be brought under control by raising the pensionable age, for instance, then the pensionable age would have to be raised by three years.

In the compulsory professional pension schemes, every pensioner is paid about CHF 40,000 too much in the course of his life in retirement since the conversion rate assumes too low a life expectancy. Today, this CHF 40,000 is borne by the contribution payers. The height of the conversion rate must be urgently rethought in order to eliminate this transfer from young to old in professional pension schemes. If it is not, there is a danger that the internationally recognised three-pillar system will be undermined in its foundations and jeopardised.

Intergenerational contract in jeopardy
Besides old-age provision, the study discusses other areas of social insurance in which young people’s financial burden is increasing. This includes health insurance and accident insurance. The burden on young people is not only on the rise in social insurance, however. As the overview presented by the study reveals, this will further increase both in the public and private sectors. Examples of this are provided by the growing demand for labour-intensive care and by the costs of climate change, which will have to be borne by future generations.

How, in the authors’ view, must Federal Councillor Berset’s present reform proposals be rated against the background of the results of the study? The proposals are a step in the direction of more intergenerational justice. The IVW-HSG academics do not think that the proposals go far and fast enough. “Today, billions are already transferred from young to old. Therefore we should not wait with reforms until 2020. Also, the increase of the pensionable age for women to 65 is only a small contribution, which on its own cannot restore intergenerational justice,” said HSG Insurance Economics Professor Martin Eling.

Picture: Photocase / *bonsai*

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