How to guarantee the pensions of the next generation

Preventing the collapse of the pension system in the long term is an imperative shared by many countries. However, Switzerland faces an additional hurdle: direct democracy.

After decades of hard-fought battles, the Swiss people have finally voted to raise the retirement age for women from 64 to 65, on a par with men. They were convinced by the urgency of taking measures to maintain the level of old-age pensions. However, the “yes” vote was only 50.5%, and the ballot revealed two major divisions within the country: between men and women, and between the German-speaking cantons and the rest.

Like many other countries, Switzerland’s pension system is being weakened by rising life expectancy: the number of people in work is no longer high enough compared with the number of pensioners. The authorities predict that the pension insurance system will no longer balance its books from 2032 onwards, despite the increase in the retirement age for women.

However, the Swiss system is characterised by its diversity because it is based on three “pillars”: old-age and survivors’ insurance (OASI), occupational pension provision (second pillar) and individual pension provision (third pillar). The OASI is intended to guarantee a minimum standard of living and is compulsory for everyone, the occupational pension provision is intended to guarantee the previous standard of living and is compulsory for everyone who is employed, while the third pillar is an optional and tax-efficient private savings scheme.

However, the three-pillar system does not live up to its promise, as the pensions paid by the OASI are not sufficient to live on and many pensioners have to rely on supplementary state benefits. In addition, women and low-income earners are under-represented in the occupational pension provision and therefore generally receive a lower pension. While the finances of the old-age insurance system are particularly affected by the rise in life expectancy, the finances of the occupational pension provision are also affected by market turbulence: a poor economic climate can quickly lead to a decline in the investment performance of pension funds.

In order to reduce inequalities in retirement and to cope with the demographic changes in society, the Swiss authorities have initiated several reforms, as have many other countries. But Switzerland’s direct democracy and the complexity of the system are slowing down the process. A revision of the OASI, which included an increase in the retirement age for women, was rejected by voters in 2004. A new project modifying the functioning of both the first and second pillars, still with the aim of pushing back women’s retirement, was again swept aside at the ballot box in 2017.

It was not until September 2022 that the umpteenth revision of the OASI was finally accepted in a popular vote, with an increase in value-added tax (VAT) and the much talked-about increase in the retirement age for women from 64 to 65. A small revolution in Switzerland, while most industrialised countries have long since delayed retirement and abolished age differences between the sexes.

The increase in the retirement age for women in Switzerland is only the first step: there is still a long way to go before the entire system becomes sustainable. The revision of the OASI adopted by voters does not solve the financial problems of the old-age insurance system in the long term, nor does it reduce inequalities. A new reform of the first pillar is inevitable.

A revision of the second pillar is underway, but it is generating a lot of criticism and is deeply dividing the parties on the left and right. Pensions will continue to be the subject of numerous debates and popular votes in the coming years.