Due to the general population living longer, pension benefits are facing increasing pressure. From a sociopolitical perspective, there are three options: a pension cut, an increase in the retirement age or more contributions. Which makes sense?

To mark the 50th anniversary of the three-pillar concept, the magazine "Social Security (CHSS)" invited unions and employers to a debate. The discussion on retirement provision centers on the financing of the first pillar: While Pierre-Yves Maillard, president of the trade union federation, wants to expand the AHV, Valentin Vogt, president of the employers' association, calls for "unconventional" solutions such as linking the retirement age to life expectancy.

Together, the first and second pillars protect against old-age poverty

Valentin Vogt, President of the Employers' Association, promotes the distribution of risk across three pillars of the Swiss pension system: the first pillar responds strongly to demographic changes, the second to the development of financial returns, and the third pillar allows individual leeway, whereby he also includes all private savings. Those who have a first and a second pillar also have a lower risk of poverty than someone who relies on the AHV alone. Pierre-Yves Maillard, President of the Confederation of Trade Unions, praises the stability of the first pillar as well as the possibility of the second pillar to withdraw the capital. In the past ten years, however, the system has begun to falter: Lower conversion rates in occupational pension plans would lower the pension level. He also points out that only a minority enjoys the benefits of a third pillar.

Benefits are coming under increasing pressure

The AHV covers less and less of the last salary, and the conversion rates for occupational pensions are falling. Vogt confirms this reduction - after all, the population is getting older and older. Further reforms are therefore inevitable. From a socio-political point of view, Vogt sees three options: pensions can be cut, the retirement age can be raised, or more contributions can be demanded. A pension cut is out of the question for him. The remaining options are to increase the retirement age and demand additional contributions. A combination of the two measures seems to him to make the most sense. For Maillard, raising the retirement age is not an option. For employees, additional wage contributions would be the least painful: in May 2019, two-thirds of the electorate said yes to a 0.3-point increase in AHV wage percentages (tax reform and AHV financing bill STAF). This shows the broad acceptance of this measure. The social partners had gradually increased the AHV wage percentages over decades to adequately finance the AHV. Why does the employers' association suddenly want to end this success story?

Switzerland is already under pressure with its high wages

Vogt emphasizes that the SAV is opposed to purely financing proposals for reforms. He also criticizes the trade unions in Switzerland for wanting to make labor more expensive. With its high wages, Switzerland is already under enormous pressure in international comparison. He attributes the low unemployment to catch-up effects due to the Covid 19 pandemic as well as the shortage of skilled workers: More and more people are working part-time while the baby boomers are retiring. If things continue like this, Switzerland will have problems maintaining its prosperity. In the meantime, many Swiss companies would increasingly build up jobs abroad. According to Maillard, however, a 0.3 percent increase in AHV contributions will have no effect on the labor market. The unemployment rate in Switzerland is at an all-time low.

Is the second pillar overfunded?

Maillard sees the most potential for savings in the second pillar in view of aching wage percentages. He claims that wages pay 25 billion francs more into the occupational pension scheme each year than is received in the form of pensions and lump-sum withdrawals. After almost 40 years of the second pillar, the time has come to critically question this mechanism. It seems to him that the second pillar is overfunded. The pension funds would manage assets of 1 trillion francs. At the same time, they must invest the funds according to strict guidelines, which weakens the social partners' room to maneuver. A system has been built, which gives pension experts too much power. The relationship between wage contributions and benefits no longer seems to be correct. A fundamental analysis is needed to determine whether more risks are possible. Vogt also concedes that those who work part-time are at a disadvantage today - many of them women. However, he does not fully understand the criticism of the second pillar: Thanks to the strict rules, there have been no major bankruptcies of pension funds since 1984. The unions also have equal representation on the boards of trustees of pension funds and support the investment decisions.

Employers should offer flexible working models

When asked about an increase in the retirement age, as the Young Free Alliance wanted to achieve with a popular initiative, Vogt says that the initiative is a good opportunity to discuss an increase in the retirement age objectively and with an open mind. After all, he says, the aging of the population is a fact. But while Maillard refers to the increasing pressure on employees, Vogt cites those older workers who still feel fit at 65 and want to continue working - with a smaller workload. Employers are therefore called upon to offer flexible working models so that, for example, people can gradually reduce their workload from the age of 58 and continue working beyond the reference retirement age. We must get away from the idea that work stops at age 65. Maillard interjects that there is no need to increase the retirement age: people can already work longer today. Those who want to work longer should do so. However, those who want to retire at the normal time should not be penalized. He also called for honesty: the companies would set the pace on the labor market. The over-60s often have the short end of the stick.

Unconventional solutions must be considered Vogt sees things differently: He points to the shortage of skilled workers. Maillard affirms that if people are not sick or exhausted, they would like to work, even in old age. That's why working conditions need to be improved. Also, only high earners can afford early retirement. The other half of the workforce has no choice and must work until 65 because they are dependent on the AHV. Many of them are women. However, an increase in the retirement age is out of the question for the unions and will have a difficult time at the ballot box. Vogt proposes, for example, linking the retirement age to the number of years someone has worked. Or linking the retirement age to life expectancy. In any case, the current system is far too rigid. We need to think about unconventional solutions.