Pensions system reform faces heated debate

Raising the retirement age is still taboo Keystone

Parliament is making a new attempt to overhaul Switzerland's old age pension scheme - under financial pressure and in view of the ageing population.

The planned reform includes raising the retirement age for women to 65, in line with that of men, and facilitating early retirement schemes for low-income earners.

The state old age pension system – a key tenet of the country’s social security scheme – is aimed at supporting the older generation and preventing them sinking into poverty.

Since its start 60 years ago the scheme has undergone nearly a dozen reforms, which have gradually increased the monthly pension payments.

But the most recent attempt to shore up the system by increasing the retirement age ended in a defeat for parliament and the government at the ballot box in 2004.

Four years on, the centre-left, centre-right and rightwing parties are set for a new battle of words in the House of Representatives next week.

Experts say longer life expectancy and a drop in the birth rate could sooner or later throw the social security system of industrialised countries, including Switzerland, out of sync.

Growing burden

The demographic shift puts the onus for the funding of pensions increasingly on the working population, as the system is financed mainly from employer and employee contributions.

While statistically it will take 3.6 people to pay for one pensioner in 2008, the burden will have to be shared by just 2.2 people by 2040.

“The old age pension scheme is based on the redistribution of funds. The key term is fairness between the generations. Young people have to finance the pensions of the older generation,” says Ignazio Cassis of the centre-right Radical Party.

“We can not force the younger generations to pay ever higher contributions to benefit the pensioners. They are at risk themselves of falling into poverty.”

Opinions are divided over whether it is necessary to tap into new sources to ensure the financing of pensions, to cut pensions or to keep older people on the payroll beyond the age of 65.

“The only realistic solution, adopted by other European countries, is to raise the retirement age rather than lower it. People live longer and they are healthier,” Cassis added.

However, it is widely believed that calls for a general retirement age at 67 would stand no chance of winning approval in Switzerland. Interior Minister Pascal Couchepin raised a political storm when he launched such a proposal five years ago, dealing a blow to the supporters of a pension reform campaign.

But observers also point out that the lack of measures to support people on a low income – despite previous pledges by the government – contributed to the 2004 ballot box defeat.

Flexible retirement

The introduction of a flexible retirement age remains the key element of the latest reform. All sides appear to agree on the principle but positions are irreconcilable when it comes to how it would be financed.

The rightwing Swiss People’s Party, as well as many members of the centre-right Radicals, are adamantly against the use of public funds to back the flexible pension scheme.

They say early retirement has to be funded by a reduction in pension benefits according to mathematical criteria.

For their part the centre-left Social Democrats are promoting early retirement for low-income earners. They say the financial situation of the old age pension scheme is sound enough and extra costs can be covered by higher economic growth.

In the same vein, the Trade Union Federation has launched a people’s initiative in a move to put pressure on parliament. The unions are calling for a flexible retirement age for anybody over the age of 62 with an annual income of less than SFr120,000 ($116,000).

The compromise put forward by Thérèse Meyer of the centre-right Christian Democrats, could help end the stalemate. The money saved by raising women’s retirement age and other planned measures would be used to finance early retirement.

“It is our last chance to introduce a flexible retirement system. We don’t know what other solution could satisfy the needs of the population if parliament fails to agree this time,” Meyer said.

The Radicals and Interior Minister Couchepin for their part are no longer convinced of the reform. They want to abandon the latest attempt and instead came out in favour of a flexible retirement age between 62 and 70.

If parliament indeed follows the Radicals in rejecting the reforms once again, it would put an end to ten years of debate and botched reform plans. The likely way out of the crisis in such a case is an urgent and radical package of measures to guarantee the future of the state old age pension system.

swissinfo, based on an article in Italian by Andrea Arcidiacono

In brief

The state old-age pension scheme is funded jointly through contributions by employers and employees.

The plans for the latest reform of the scheme foresee raising the retirement age for women by one year to 65, in line with that of men.

The reform also includes ways of facilitating earlier retirement, the option of putting off retirement, as well as new funding mechanisms to adapt pensions to inflation.

Another proposal wants to impose a levy to finance an early retirement scheme.

The number of old age pensioners was 1.755 million in 2007. The scheme recorded a surplus of SFr2.7 billion in 2006.

Individual pensions benefits ranged from SFr1,105 to SFr2,210 per month. Married couples received up to SFr3,315.

Invalidity benefits

The House of Representatives also resumes discussions on plans to raise additional funds to finance invalidity benefits.

The insurance scheme had run up debts of SFr11 billion by the end of 2007.

Last year voters approved annual spending cuts and a reduction in the number of new beneficiaries.

swissinfo.ch