by Across much of the developed world pension finances are getting squeezed as populations age, baby boomers in particular. Switzerland’s government has a reform plan. However, some who don’t like it called a referendum to oppose it. Arguments for and against the changes are being aired before a vote on 25 September 2022. Photo by Kampus Production on Pexels.comThe proposed changes, dubbed AVS 21 (AHV 21), include raising the state pension (AVS/AHV) age of women from 64 to 65, the current age for men, and greater flexibility on choosing when to retire – those who choose to retire earlier receive smaller payments and those who delay receive more. In addition, there is a separate vote on whether to increase VAT from 7.7% to 8.1% (2.5% to 2.6% reduced rate) to help fund future pension
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Across much of the developed world pension finances are getting squeezed as populations age, baby boomers in particular. Switzerland’s government has a reform plan. However, some who don’t like it called a referendum to oppose it. Arguments for and against the changes are being aired before a vote on 25 September 2022.
The proposed changes, dubbed AVS 21 (AHV 21), include raising the state pension (AVS/AHV) age of women from 64 to 65, the current age for men, and greater flexibility on choosing when to retire – those who choose to retire earlier receive smaller payments and those who delay receive more.
In addition, there is a separate vote on whether to increase VAT from 7.7% to 8.1% (2.5% to 2.6% reduced rate) to help fund future pension shortfalls.
A key argument against the plan is that it isn’t required. The committee against the reform claims Switzerland’s pay-as-you-go state pension (AVS/AHV) is in good financial health. In 2021, more was collected than paid out in pensions and reserve assets came to CHF 50 billion.
In 2021, there was an AVS/AHV surplus of CHF 2.6 billion. However, a large funding gap between what was paid in by workers and paid out to beneficiaries was filled with a CHF 9.5 payment from the federal government. Without this large boost funded out of federal taxes the CHF 2.6 billion surplus would have been a CHF 6.9 billion deficit. A deficit this large would wipe out existing reserve assets in around 7 years without additional funding from taxes.
In addition, anti-reformers claim as more women enter the workforce there will be more workers to support pensioners. In 2021, the labour force participation rate was 72.7% for men and 62.2% for women. However, closing this gap is unlikely to to be enough to balance the books. The Federal Social Insurance Office (FSIO) says there were 6.5 people of working age for every retiree in 1948, but only 3.2 per retiree in 2020. Anti-reformers claim the figure of 6.5 is misleading because most women were not on the payroll in 1948 but are now. In response to this challenge, FSIO provided alternative figures that look at the number of active workers instead of those of working age. This brings the 1948 figure down from 6.5 to 5.5 workers per pensioner and reduces the 2020 figure to 3.1 instead of 3.2. So there is a difference but it isn’t large. And the population continues to age, which will reduce the number of workers relative to pensioners.
Another suggestion made by those against the government’s reform plan is to fund any shortfalls out of the profits of the Swiss National Bank (SNB), Switzerland’s central bank. But relying on central bank largesse for funding is risky. The central bank is focused on maintaining monetary stability. Sometimes this generates profits. Sometimes it results in losses. When monetary policy is expansionist and the resulting assets held by the SNB rise in value it can generate large profits as it has over the last few years. However, when the Swiss franc strengthens and asset values slump the bank can generate large losses as it did in the first half of 2022, when losses on assets denominated in foreign currencies reached CHF 97.4 billion.
Another argument against bringing the retirement age of women into line with that of men is pension inequality. The committee against reform claims women currently get 37% less pension than men when work related pensions are included. This largely reflects a history of households where typically only men had paid employment. Among younger workers there is less of a gap. Also, couples that stay together in retirement benefit collectively from the pensions of both ad laws around sharing work-related pensions when divorcing help to even things when couples separate.
The Federal Council, parliament and the Council of States are all behind the AVS 21 reform. In parliament 126 are in favour, 40 against with 27 abstentions. In the Council of States, Switzerland’s upper house 43 are in favour with no one against and no abstentions.
The latest polls, published by RTS suggest the reform will be accepted by voters. A poll run on 14 September 2022 by SSR shows 59% in favour of equalising the retirement age and 63% in favour of raising VAT. However, if the vote results follow the latest polls many are likely to be displeased. Groups against the reform include women (51% against), Green Party supporters (63% against) and Socialists (70% against). And French speakers are far less likely to support the reform (47% in favour) than German speakers (64% in favour).
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