Retirement at age 67 won’t be feasible over the long term if the Swiss pension system is to remain functional, a government-commissioned study has found.
The study by BAK Basel Economics evaluated the effect of the baby boom — the large increase in births between 1942 and 1973 — rising life expectancy, net migration and a low birth rate on the old age pension fund in the period between 2010 and 2060.
Sometime between 2015 and 2018, it found, more money will be needed for pensions than is collected through worker contributions and value-added tax (VAT).
A mix of approaches to addressing the problem was suggested, including rapid introduction of a temporary surcharge on salary contributions to finance the baby boomers‘ state pensions, and gradually increasing the retirement age over many years, beginning with an increase to 66 in 2019 and reaching 70 in 2050. The increase would be linked to a gradual increase in VAT.
The economists from BAK Basel Economics who conducted the study suggest it contains “concrete food for thought for political decision makers.” Alain Berset, minister responsible for social insurance, is expected to present a proposal for reform of the system by the end of the year.
Political perspectives
In 2003, the then Interior Minister Pascal Couchepin stirred up controversy with his proposal to increase the retirement age to 67, but the change was never introduced. Currently, the retirement age is 64 for women and 65 for men.
A retirement age of 70 is considered too extreme both by conservative parties and trade associations. Conservative Democrats President Martin Landolt, quoted in Der Sonntag newspaper, welcomed a “step by step increase in the retirement age, initially in the direction of 67 years”, while Philipp Müller of the centre-right Radical Party saw a gradual increase “in the midterm” as unavoidable.
The right-wing Swiss People’s Party preferred to concentrate on increasing the retirement age for women to 65. And Thomas Daum of the Employers’ Association, pleaded for an increase to age 67, but “in homeopathic doses”.
The BAK economists suggested a combination of increasing the retirement age to 67 and increasing VAT by 1.5 percentage points.
Currently, one per cent of VAT is reserved for the retirement fund. To make the system viable over the long term, the amount should be increased to 3.8 per cent, the study found.
Today, employers and employees each contribute 4.2 per cent of a worker’s wages to the retirement fund. That total should be increased from 8.4 per cent to 11.3 per cent.
A last option, reducing the pensions received by retirees by between 0.4 and 0.5 per cent, is considered taboo in Switzerland.