by Swiss state pensions have been in the news a lot recently. VAT increased on 1 January 2024 to help fund them, and two referenda on the subject are set for voting on 3 March 2024. This week, RTS published an article setting out the mathematical reality of Switzerland’s pension finances. © Toa555 | Dreamstime.comPensions in Switzerland, like in much of the developed world, face two significant head winds. The biggest of these is demographic shift. The ratio of people paying into the system versus those taking money out of it is set to drop dramatically. In addition, life spans have risen, although not so much recently. Pension finances are akin to the slow boiling of a frog. If the temperature rises only slowly, the frog barely notices. In 2022, Switzerland’s state pension fund
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Swiss state pensions have been in the news a lot recently. VAT increased on 1 January 2024 to help fund them, and two referenda on the subject are set for voting on 3 March 2024. This week, RTS published an article setting out the mathematical reality of Switzerland’s pension finances.
Pensions in Switzerland, like in much of the developed world, face two significant head winds. The biggest of these is demographic shift. The ratio of people paying into the system versus those taking money out of it is set to drop dramatically. In addition, life spans have risen, although not so much recently.
Pension finances are akin to the slow boiling of a frog. If the temperature rises only slowly, the frog barely notices. In 2022, Switzerland’s state pension fund received CHF 1.6 billion more than it paid out. In addition, it ended the year with CHF 47 billion of net assets. And higher VAT from the beginning of 2024 will add further inflow. The water temperature feels perfect. The situation looks good.
But. Between 2022 and 2052, the ratio of workers to pensioners is set to rise from 31.8% to 56.4%, reaching 62% in 2082. And, long before these dates, outgoings will start to exceed receipts. Calculations from Switzerland’s Federal Statistical Office (FSO) put the tipping point at 2030, six years from now. By 2033, the FSO calculates an annual deficit of CHF 3.1 billion.
One of the votes on 3 March 2024 aims to raise the retirement age from 65 to 66. But this change, if successful, would make only a small dent in the problem. Projections show that it would save CHF 2 billion a year from 2033. This would leave deficits of CHF 1.5 billion in 2031 and CHF 1.6 billion in 2032. In 2033, when the higher pension age kicked in, there would still be a deficit of CH 1.1 billion. And yearly deficits would continue to rise from 2033 onwards as the dependency ratio rises.
Even later, lower pensions or higher taxes are the only ways to balance the books. An increase in the number young people may help, but to a large extent the demographic future is baked in. And higher taxes, should that be the fix, might encourage even smaller families.
In the meantime, the water temperature feels perfect.
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