Retirement provision in Switzerland faces fundamental change: growing numbers of retired people, a shrinking labour force – and a system whose long-term viability is far from certain. But what is the way forward? Our study shows that the population is already thinking ahead of policymakers and, for the most part, supports new and realistic reform ideas.

The results of a representative population survey and in-depth economic analyses reveal three effective approaches for long-term stabilisation of retirement provision that are viable, affordable and have majority support. These approaches do not involve the state alone: companies and insured persons themselves can also play a bigger part than before.

Switzerland needs reforms, and its people support change – but not the measures that currently top the agenda. Two-thirds (65 per cent) reject an increase in VAT, 49 per cent oppose higher salary contributions, 60 per cent oppose more taxes on pension fund assets, and 67 per cent oppose a one-off increase in the retirement age. This rejection is apparent across all age groups and both genders, except among the under-34s and over-64s, where the only conventional measure with narrow approval is higher salary contributions.

A reform measure is only truly effective if it is economically sound and has majority support. Our criteria for economically sound are sustainable funding, intergenerational equity and strengthening of Switzerland as a business location, since only a well-performing location can fund a welfare system in the long term. In the following diagram, possible ideas for reform are subjected to these two tests. Majority support was gauged by means of a representative population survey. Respondents were asked about reform options for OASI, although some options are relevant to all three pillars.

Reform proposals

So, what is left when all options are examined in terms of cost-effectiveness and majority support? Of the host of possible options, only three remain:

• Temporarily increasing the federal contribution while making cost savings elsewhere
• A more prominent role for funding, including in the first pillar
• A more flexible retirement age

1. Temporary increase in federal contributions to OASI:

A relative majority of 44 per cent supports an increase in federal contributions. However, rather than being used for current expenditure, these should be earmarked to increase the OASI fund. This would stabilise the OASI deficit in the short term and generate investment income in the long term.
The advantage is that these contributions would be time-limited, such as via a sunset clause, and would have to be offset by simultaneous cost savings or reallocations in the federal budget. It would be particularly effective if the contributions were to go straight into a boosted OASI fund that is invested in the capital markets. This would not result in a new persistent deficit – but financial stability would be attained.

2. Greater funding in all three pillars

1st pillar (OASI): 53 per cent of respondents are in favour of pensions being funded more from returns on investments in the capital market. Doubling the OASI fund would be sufficient to close a large part of the projected financing gap by 2040. A temporary increase in federal contributions and corresponding cost savings on other federal tasks could build up the OASI fund over several years without prompting fundamental systemic change.

2nd pillar (pension funds): Higher incoming payments and returns strengthen the 2nd pillar. There should be sufficient benefits from lowering the eligibility threshold, particularly an improvement in retirement provision for low earners. In addition, higher returns should be targeted in the 2nd pillar. Although this would increase the risks, they would in turn be mitigated by the lengthy investment period.

Furthermore, greater individualisation of the investment strategies makes room for personal preferences, thus allowing the selection of investment strategies with a higher probability of return. With long-term investments, the risk of loss would be contained. There would also be greater transparency for those insured, and they would have better and easier access to the pension information relevant to them.

3rd pillar: In the survey, just under half (49 per cent) of respondents stated that they pay into the 3rd pillar, but only 17 per cent pay in the maximum amount. Of those who pay in, only 9 per cent invest the entire amount in the financial market in shares, bonds or similar financial products. A lack of financial resources is the main barrier to contributions (41 per cent), and risk aversion is the main reason for not investing (43 per cent). The long-term effect of regular investments should not be underestimated. Over the years, significant capital can be accumulated even with smaller contributions.

In view of this, offerings in the 3rd pillar could be optimised, such as in terms of cost/benefit ratio, customer experience and customisation.

3. A more flexible retirement age:

68 per cent of respondents in the Deloitte survey support a flexible retirement age. For this to improve the financial situation of retirement provision, people would have to be willing to work for longer. Bringing in a flexible retirement age could succeed with the following measures.

Opt-in model: Introducing a model for retirement in which employees make their own decision on when to retire, subject to a minimum age. The reference age, which serves as a basis for calculating the pension, would remain at 65.

Choosing to work for longer: Many people want to work for longer: 69 per cent of respondents can readily envisage working beyond the standard retirement age. Part-time employment is twice as popular as full-time employment. These figures are stable across different age groups, and there is no major difference between the genders.
However, not all people are able to work beyond the current retirement age for health or work-related reasons. For instance, 30 per cent of today’s pensioners feel that there are health barriers, with the figure as high as 44 per cent among contributors.

Improved incentive structure: Work should be worthwhile, and employees should be motivated to choose to work beyond the OASI age. Accordingly, no further OASI contributions should be payable on account of this economically desirable work (which is also taxable). People gain the right to an OASI pension on reaching the OASI age; this should not be made conditional. In the second and third pillars, contribution options, interest and tax benefits should also be assured after the reference age.

Measures for age-appropriate working: Companies can motivate older employees and ensure long-term commitment through flexible employment models and tailored programmes. Flexible working hours, part-time options and opportunities to work from home give older employees the flexibility they need. Targeted training programmes and mentoring schemes for sharing knowledge are also important. Companies should be more willing to recruit older employees without prejudice and invest in inducting and training them.

It is down to the state, but companies and insured persons should also use the options available to them

The state has a crucial role to play. However, precisely because state pension reforms are hard to implement, companies and individuals should also use their opportunities to improve the retirement provision of their employees or themselves. An absence of state reforms would only increase the onus on companies and insured persons to secure their pensions.