Mercer | The end of one reform is the start of the next ones

The end of one reform is the start of the next ones

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The end of one reform is the start of the next ones
Altersvorsorge im Gleichgewicht?
Calendar25 September 2017

The 2020 Pension Reform included old-age and survivors' insurance (AHV/AVS) as well as the mandatory part of the second pillar (occupational pension funds) which cover annual incomes of up to CHF 84’600. If the reform had been approved, the Swiss would have agreed to a reform of their old-age provision for the first time since 1997. Two revisions for the first pillar have now failed, the first in 2004 in the popular vote, the second in 2010 in the final vote in the parliament. In addition, the voters in 2010 clearly rejected the reduction of the minimum conversion rate in the second pillar.

No break

According to the Federal Council, the 2020 Pension Reform would have secured pensions and adjusted old-age pensions to social developments. With additional savings and revenues, the first pillar should have been balanced until the end of the next decade. At the same time, the minimum conversion rate would have been gradually reduced in order to stabilize mandatory occupational pensions. In addition to the reform of old-age provision, other important aspects of the reform, such as the flexibility for retirement between ages 62 and 70 years for both pillars, and the gradual increase in the ordinary retirement age of women to 65 years are also postponed for the time being.

Pension Funds are now safer, but need to adapt to new realities

According to the Supervision Commission for Occupational Pensions (OAK BV/CHS PP), the system of occupational pensions has become safer in recent years. On the liability side, major adjustments have been made over the past years, in particular with regard to the technical interest rate. The same applies to the conversion rates, which have also been significantly reduced for non-mandatory savings in recent years. By rejecting the 2020 Pension Reform, however, the politically defined minimum conversion rate for mandatory savings of 6.8 percent remains unchanged. This jeopardizes financial stability, especially for pension funds with a high proportion of insured persons who are only insured to the extent of the mandatory minimum.

In an international comparison, the Melbourne Mercer Global Pension Fund Index also provides a good rating (B) for the Swiss pension fund system, but it also places further demands for revision. OAK BV/CHS PP also considers the system of occupational pensions – endangered by low long-term interest rates and earnings level, the demographic development and the sustained additional funding needs of existing high pension amounts – as being at the "beginning of a major change".

Perspectives for individual reforms of the two pillars of old-age provision

Despite the urgent financial need for action, the "no" to the 2020 Pension Reform now opens up prospects for separate reforms of the first two pillars of old-age provision. If the proposal had been approved, the linkage of the two pillars, which was proposed in the reform, would have given a perspective that would have required the provision of pension through a politically controlled link between the first pillar and the mandatory portion of occupational pensions.

However, the politicisation of the mandatory portion of the occupational benefits remains high even after the rejection of the 2020 Pension Reform: The Council of States (one chamber of the parliament) has already decided to restrict the lump sum payment of savings at retirement. It thus followed the Federal Council, which wants to ban lump sum payments in the mandatory part of the second pillar (covering wages up to CHF 84,600).

However, the inclusion of the mandatory part of the second pillar into a solidarity-based overall pension is also promoted by employers to a certain extent. The continuing shift from company-owned funds to large collective schemes undermines the employer's commitment to pensions. On the one hand, company-specific solutions are made more difficult. On the other hand, possible financial conflicts tend to be delegated to superordinate and therefore ultimately politically regulated authorities.

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