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Ageing population is financial time bomb

Old people are the future in Switzerland - but what does it mean for the budget? Emanuel Ammon/AURA

Switzerland's finance ministry is warning that the country's ageing population will put financial resources under increasing strain as more and more people retire.

The financial situation will be critical in 2050 with public debt equivalent to 130 per cent of Gross Domestic Product. Officials are recommending that social security financing be urgently reviewed to lessen the impact of demographic change.

“The longer it takes for the necessary reforms to be implemented, the tougher they will have to be,” the ministry said in a report issued on Wednesday. “The sooner they are introduced, the more fairly the costs can be spread across the generations.”

Switzerland’s baby boom generation – people born between 1946 and 1964 – will be retiring over the next 20 years. But during this time the birth rate is not expected to rise while life expectancy will continue to increase.

According to the finance ministry, this means that the number of people over the age of 80 will be multiplied by four between 1991 and 2050, while the number of those between 65 and 80 will double.

Pension pressure

Furthermore, in 2050 there will only be two people working for every one person over 65 – the current ratio is four to one – putting more pressure on the pension system.

The report says that the growth of the ageing population will have little impact before 2020, but warns that it would be a serious mistake only to consider the next 15-20 years.

The public debt will grow substantially as of 2025 if reforms are not implemented, it says. The cost of pensions, healthcare and long-term treatment for the elderly will increase proportionally more than GDP, putting extra strain on public funds.

This means that by 2050 spending in these domains will be equivalent to more than 20 per cent of GDP, compared with 15.2 per cent in 2005. If there is no change in the way these tasks are financed, public debt will balloon from 50 per cent of GDP to 130 per cent over the same period.

The finance ministry is warning that the inevitable result of failure to take action within a reasonable timeframe will be an increase in the gap between income and spending. In 2020, that gap could be equivalent to up to 2.9 per cent of GDP, and in 2050, as much as 4.7 per cent.

International comparison

The report admits that long term forecasting cannot be wholly accurate, since many unknown factors may arise, such as the impact of climate change, epidemics or the growing scarcity – and increasing cost – of raw materials.

The ministry’s report is the first of its kind to be released in Switzerland, although countries like Great Britain and Germany as well as the European Union and some international organisations carry out regular reviews of their long-term financing.

Demographic evolution in Switzerland is comparable to that of EU countries, despite differences in birth rate. In both economic growth will decrease in the next few decades as the number of people in work goes down substantially.

swissinfo with agencies

The state old-age pension scheme is funded jointly through contributions by employers and employees.

The plans for the latest reform of the scheme foresee raising the retirement age for women by one year to 65, in line with that of men.

The reform also includes ways of facilitating earlier retirement, the option of putting off retirement, as well as new funding mechanisms to adapt pensions to inflation.

Another proposal wants to impose a levy to finance an early retirement scheme.

The number of old age pensioners was 1.755 million in 2007. The scheme recorded a surplus of SFr2.7 billion in 2006.

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SWI - a branch of Swiss Broadcasting Corporation SRG SSR

SWI - a branch of Swiss Broadcasting Corporation SRG SSR