Government announces pension plans

How will these pensioners' children manage in old age? Keystone

The cabinet has presented the outlines of its planned reform of the old age and occupational pension schemes – the so called 1st and 2nd pillar of the social security system – which aims to compensate for expected shortfalls in future revenue.

Under the plan, the retirement age for women will be raised by one year to match that of men, at 65. Early retirement will not be possible before 62, four years later than at present.

In order to keep pensions at their current level, everyone will have to pay more into the pension schemes as the “conversion rate” will be lowered from 6.8 to six per cent. This is the proportion of a worker’s total contributions that is paid out in pension each year. Where currently for every CHF100,000 paid into the scheme over the working lifetime, the pensioner receives CHF6,800 per year, this would drop to CHF6,000 per year under the reform.

The rate of Value Added Tax – currently eight per cent – will rise in two stages by a total of two per cent.

Announcing the plans to the media on Friday, Interior Minister Alain Berset said that although the reform was a package, and should be discussed as such, some of the provisions – such as the rise in women’s retirement age – would be introduced in stages.

He described the reform as “ambitious, but realistic”. He explained that it was the government’s duty to find balanced solutions to the problems posed by demographic developments, where the number and proportion of pensioners in the population will continue to rise. As things stand at present, the money paid into the pension funds would not be enough to cover their outgoings.

The interior ministry will finalise details for formal proposals to be put to parliament by the end of 2014. Discussions will follow the regular parliamentary procedure, estimated to last three to four years.

Since the package includes an amendment to the constitution, it will have to be put to voters for a final say, which is expected around 2020.

The proposed reforms are highly controversial. The trades unions have rejected any move to reduce pensions. The Trade Union Federation said the change in the conversion rate would cut pensions by 12 per cent, but pension funds welcomed this, saying already people do not contribute enough during their working lives to cover their pensions.

The Swiss Employers’ Association welcomed the rise in the pension age, but criticised plans to increase VAT. It said such a rise must be coupled with a further rise in pension age to 67. Trade unions, on the other hand, have come out against a higher retirement age for women.

Previous attempts to reform the pension system have been thwarted in parliament or in a nationwide vote.