Opinions - 25.06.2013 - 00:00 

Safeguarding pension schemes

Federal Councillor Alain Berset has presented the cornerstones of the Swiss pension scheme reforms. The proposals are intended to create equality between the generations. An assessment by HSG professor Martin Eling.


25 June 2013. The Federal Council gets straight down to the nitty-gritty: thus women’s retirement age is to be raised to 65, the minimum conversion rate for pension funds is to be reduced from 6.8% to 6.0%, and 2 percentage points of the value-added tax are to be used to fund the old-age and survivors’ insurance scheme. How must the Federal Council’s current proposals be rated?

According to the political discussion, pillars 1 and 2 are to be reformed in tandem. This is basically to be welcomed since there are big overlaps within the reform issues – retirement age being a case in point. For the old-age and survivors’ insurance, it has been proposed to raise women’s retirement age to 65, to create incentives to work longer, and to arrange for compensation for low incomes. In occupational pensions schemes (pillar 2), a lower conversion rate is being discussed, again with compensation for low incomes and for the transitional generation being envisaged.

Increasing the pace of reform
This, then, is an extensive reform package, which integrates proposals made by different political parties. From the perspective of equality between the generations, its thrust is basically sound. However, the process is too slow: implementation has only been planned for 2020 (with a ballot in 2018). According to the current projections of the Institute of Insurance Economics at the HSG, deficits of umpteen billion will have accrued in the occupational pension schemes alone by that time. A higher reform pace would have to be greatly welcomed from the perspective of equality between the generations, but may well be unrealistic for political considerations.

Increasing women’s retirement age to 65 years is also a step in the right direction. An even higher retirement age or an indexed adjustment to the development of life expectancy should also be discussed, however. An integrated reform should take into account the separation between the first and second pillars in order not to jeopardise the important strengths of the three-pillar system, i.e. the principle of solidarity between young and old in pillar 1, on the one hand, and the principle of beneficial ownership in pillar 2, on the other hand.

Success factors for implementation
Three success factors can be inferred from international comparative studies of pension scheme reforms. First of all, a broadly based consensus regarding the key elements of a reform is required. The objectives of all the actors involved in the reform process (trade unions, employers, political parties) must be taken into consideration. The introduction of self-regulating mechanisms can be identified as the second success factor: a depoliticisation of the decision-making parameters in an objective form. Ultimately, fundamental reforms based on transparent principles are accepted better than minor reforms.

With a view to these three guidelines, a fundamental reform of old-age provision appears to be promising as long as it examines the problems of the first and second pillars and provides support through accompanying measures. Lastly, it is the politicians’ task to communicate the reform to the electorate. Surveys reveal that a majority of the population are aware of the problems of pension fund schemes and favour a reform. From the perspective of equality between the generations, it must be hoped that the Swiss reform package will succeed.

Photo: Photocase / Madochab

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