Bloomberg

(Bloomberg) -- Swiss voters decide this week whether to support a 10 percent increase in the basic state pension amid an opposition campaign that likened the proposal to feeding gourmet food to pigs.

The labor unions and Socialist and Green parties backing the initiative to boost the maximum monthly AHV pension to 2,585 francs ($2,645) have called on the young to show solidarity with retirees facing the prospect of shrinking incomes. The Christian Democrat party showed its opposition to a plan it says an aging population can’t afford by serving a three-course lunch of salad, stuffed zucchinis and berries to pigs outside the Swiss parliament in Bern.

Signs are the porcine feast earlier this month may help to defeat the proposal in a Sept. 25 vote. After an opinion poll in August showed voters evenly split, another this month by Swiss broadcaster SRG has 52 percent opposed to the plan, with just 40 percent in favor.

“We can’t afford to increase our pensions,” Sebastian Frehner, a lawmaker from the right-leaning Swiss People’s Party, said in a phone interview. “Increasing pensions will worsen the looming funding deficit.”

The Swiss pension system comprises three so-called pillars, including the state AHV, or Old Age and Survivors’ Insurance, that is funded by pooling 8.4 percent of each employee’s salary. The second pillar is a mandatory occupational pension to which both employees and employers contribute to, while the third pillar is a private pension that enjoys some tax advantages.

The proposal to boost the AHV comes as record-low interest rates make it harder for firms across Europe to fund the asset pools set up to provide for retired workers, prompting the Swiss government to plan a reduction in the rate of payouts on occupational pensions. If the current rate isn’t changed, Swiss pension funds will have a 73 billion-franc funding gap by 2030, according to Martin Eling, a professor of insurance economics at the University of St. Gallen. 

Government Opposition

In light of its own reform plans, including a more modest increase in the AHV, the government is opposing the 5.5 billion-franc bump in the basic pension, which is adjusted every two years in line with inflation and wages. Proponents of boosting the AHV, also known as the AVS in French-speaking Switzerland, say it will help offset cuts in occupational benefits -- the second pillar of Swiss pensions -- that threaten to reduce incomes of retirees in the coming decade. 

“In a country as rich as Switzerland, it has to be possible to maintain living standards,” said Thomas Zimmermann, a representative of the Swiss Federation of Labor Unions, which is backing the increase under the banner AHV+.

While Switzerland is among Europe’s wealthiest countries, with gross domestic product per capita only topped by Luxembourg and Norway, government figures show Swiss pensioners are twice as likely to live in poverty than the rest of the nation’s 8.3 million people.

For a QuickTake explainer on Switzerland’s people power, click here.

Regula, who helps raise her grandchildren in return for lodging with her daughter in the town of Thalwil, near Zurich, receives a widowers pension of 1,430 francs. That’s the same as the rent for a one-bedroom apartment in her neighborhood.

“I don’t want the young people to bear the burden of the old, but to receive a bit more every month would make me less dependent on my children,” said Regula, declining to provide her last name because of the stigma attached to being one of the more than 180,000 Swiss pensioners living in poverty. “Maybe I could afford a croissant more often.”

The monthly increase in the AHV would be enough to buy each pensioner one of the best seats at the opera in Zurich, but would be insufficient to pay for a first-class return train ticket from Zurich to the nation’s second-biggest city of Geneva.

“An average pensioner uses two thirds of his or her AHV to cover just the rent and health insurance,” Regula Rytz, president of the Swiss Green Party, said in a debate on national television on Sept. 16. “It’s not enough to live on.”

Deficit Projected

Switzerland, which has one of the highest concentrations of millionaire households, doesn’t publish data showing the distribution of wealth according to age, said Bruno Schneeberger of the Federal Tax Administration. Some retirees are eligible for additional social benefits to prevent them from falling below a poverty line set at 2,219 francs per month.

AHV contributions of 41.2 billion francs last year fell short of distributions to pensioners by 579 million francs. By 2030, the annual deficit is project to increase to 8.9 billion francs, according to the government’s statistics office.

The government says its 2020 pension reform plan, which includes lifting the retirement age for women to 65, is endangered by the AHV initiative.

An aging Swiss population will have fewer workers to fund state pensions. Last year, there were three workers for every pensioner in the country, but in 20 years there’ll be just over two. Interior Minister Alain Berset told Tages-Anzeiger the proposal’s backers “want too much.”

“The main problem of our pension system lies in demography,” Fredy Hasenmaile, a managing director at Credit Suisse Group AG. “It’s a flawed logic that a reduction in the second pillar can be compensated by increasing the first pillar payouts.”

--With assistance from Oliver Suess and Albertina Torsoli To contact the reporter on this story: Mara Bernath in Zurich at mbernath1@bloomberg.net. To contact the editors responsible for this story: Mariajose Vera at mvera1@bloomberg.net, Dylan Griffiths, Zoe Schneeweiss

©2016 Bloomberg L.P.

bloomberg

 Bloomberg