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Life & Aging

Why Switzerland is struggling to guarantee pensions for the next generation

Many countries are grappling with the problem of how to prevent their pension system from collapsing in the future. Switzerland, however, faces an additional obstacle – direct democracy. It is turning out to be a real conundrum. 

This content was published on April 27, 2021 - 14:22
Corinna Staffe (illustration)

The Swiss pension system is complex, and is based on three so-called pillars: old-age and survivors’ insurance (known as the AVS), occupational pension planning (often referred to as LPP) and private saving for old age encouraged through tax breaks. 

This set-up enables risk-sharing and, although “unfortunately not perfect”, could be “a model for other States”, says Thomas Gächter, professor of social insurance law at the University of Zurich. 

The system certainly gives Switzerland a time advantage over other countries; but it will not save it from the consequences of an aging population which, according to forecasts, will be unable to finance the pensions of future retirees if corrective measures are not taken. “The bomb has been triggered”, Gächter says bluntly. 

Although the Swiss government keeps warning that time is running out, reforming the pension system is a huge work in progress that has been underway for decades, and will certainly not be completed any time soon. 

The federal government has now given up on the idea of “far-reaching surgery” and instead chosen the path of “patching up here and there”, a strategy that has emerged since 2004, as all its proposals for major overhaul have either run aground in parliament or been rejected by the people. 

The winds changed after the eleventh revision of the AVS. Previously, any reforms of the pension system had brought about an improvement or consolidation of conditions for retirees. It was therefore easier to obtain a majority of votes at the ballot box. 

The AVS itself was adopted amid great popular acclaim: what was to become the first pillar of the pension system was approved by 80% of voters in a national referendum on 6 July 1947. The payment of pensions started the following year, to the delight of the beneficiaries, as seen in the following video with footage from the time. 

However, ever since the proposed reforms began to entail a deterioration in the situation for  policyholders, overcoming the constraints of direct democracy has become increasingly difficult for the political authorities. 

What is more, the vast majority of young people – who are more likely to back hard hitting measures to stop the AVS from sinking into the red, and future generations from having to foot the bill – stay away from the polls. Meanwhile, participation in popular votes is high among the elderly and those close to retirement age.  

Until the sudden emergence of the new coronavirus in 2020, surveys revealed that the issue of old-age pensions was firmly at the forefront of the concerns of the Swiss people, while their confidence in the ability of politicians to solve crucial problems has collapsed.

Will Swiss political decision-makers manage to redeem themselves in the eyes of a majority of the population with the “AVS 21” reform, which the government has already submitted to parliament? Or will confidence in them continue to erode? 

The project is the subject of bitter controversy.

One of the most sensitive points in the government’s plan is undoubtedly the proposed increase in the retirement age for women, from 64 to 65. The fact that women in Switzerland are currently entitled to a regular old-age pension one year earlier than men is lambasted by those who consider it to be a privilege compared with other European countries.

Opponents of an increase in the retirement age argue that women in Switzerland generally earn less than men during their working lives. Consequently, when they retire they receive pensions that are on average one-third lower than for men. Strictly speaking, this is due to the pension funds and not the Swiss old-age pension system, which is the subject of the reform project.

Around the world, the gender gap is being slowly eliminated. In the member states of the Organisation for Economic Co-operation and Development (OECD), for example, there is a clear trend in this direction.

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