If the 1st pillar is meant to make the retirement of future generations financially possible, an AHV revision is urgently needed. The sooner action is taken, the lower and more evenly distributed the burden will be.

A moderate increase in the reference age would be a possible way to permanently restructure the AHV without reducing prosperity in Switzerland. This was shown in an earlier UBS report. According to UBS pension experts, the reference age should not be a political decision, but should be linked to life expectancy. By 2070, the reference age would have to rise to around 68 to enable a permanently sustainable 1st pillar, they propagate. «Working longer has the advantage that more is paid in, but pensions do not have to be reduced and there is also no threat of a pension shortfall, as earned income is still being generated», the experts say.

Inequalities could increase

However, the pension experts also see disadvantages. For example, not everyone will be able to work longer and mechanisms will be needed to take account of different situations.

The report makes it clear that with a reference age of 65, the income of the AHV must be increased for both genders, either through wage contributions or other subsidies. More wage deductions mean less disposable income for the employed and also higher non-wage costs for the economy.

Government grants are ultimately financed by the population

In addition, the public sector could support the AHV with a more substantial financial injection. However, it would then have less available for other expenditures such as infrastructure, defense or culture and education, as the experts explain. Alternatively, taxes would have to be raised, which in turn would be paid for by the population through higher payroll taxes or a higher VAT rate. The state pension system has many sources of income, but ultimately they are all financed by the population.

Reform is urgently needed

How the promised AHV pensions will be financed is a political decision on which the electorate has the final say. But nothing comes from nothing, and in the interest of transparency, predictability and solidarity with all generations, a decision in favor of a higher reference age and/or higher revenues should be taken sooner rather than later, the experts warn.

The complete study on the 1st pillar can be found under this link.