The Swiss statistics office has just published some striking numbers. The number of retirees as a percentage of those of working age is expected to rise by 66% over the next 30 years across all of Switzerland. Known as the dependency ratio(1), this percentage will more than double in three Swiss cantons: Uri, Schwytz and Obwalden. In the worst hit Swiss canton, Uri, there will be over 70 people of pension age for every 100 people between the ages of 20 and 65 by 2045. Obwalden (65), Ticino (65), Nidwalden (61) and Graubunden (60) are all expected to have more than 60 pensioners per 100 people of working age by 2045. In Switzerland, where basic pensions are paid from social taxes levied on those working, these numbers matter.
Cantons with large urban populations currently have the lowest dependency rates. Zurich (27), Zug (26), Vaud (26) and Geneva (27) are all among the lowest. By 2045, Zurich (41), Vaud (42) and Geneva (40) will be joined by another urban canton, Basel City (43) to make up four of the five cantons with the lowest dependency ratios. The report says that cities attract more young people and foreigners, helping to keep the ratio of pensioners to young people lower.
Given these numbers, it is unsurprising that Patrick Frost, the boss of Swiss Life, recently urged a hike in the retirement age to 70 and a 26% cut to pension annuity rates on occupational pensions known as LPP or BVG, as reported in Le Matin. There are already plans to increase the pension age for women in Switzerland from 64 to 65, into line with that for men, and to reduce annuity percentages from 6.8% to 6% over the next four years. Patrick Frost thinks an annuity rate cut to 5% is required.
OECD data shows how relative poverty has shifted from the old to the young and middle aged. Since the mid 1980s relative poverty rates across the OECD have risen for every age group except those over 65, which has seen a dramatic decline. This and the financial impossibility of continuing with current pension systems has made pension reform one of this century’s biggest imperatives.
The OECD recommends saving more and working longer. Essentially, it suggests that workers and employers work together to find ways to adapt their behaviour to make working longer possible.
The OECD published a report in March this year that looks at progress on pension reform from 2013 to 2015. The irony is that countries in relatively good shape have made big steps forward, while many of the most fragile ones have done nothing. Australia, a nation with low government debt (64% of GDP in 2014), and well-funded private pensions, made major improvements with broad scope, according to the OECD, while Greece with high government debt (179% of GDP in 2014), introduced no new measures. The statutory retirement age in Australia is 65 moving to 67. In Greece it’s 62 with no plans to increase it.
The statutory retirement age in Switzerland in currently 64 for women and 65 for men, increasing to 65 for women. This is a bit below the current OECD average of 65.5. Unlike Switzerland, certain countries have bold plans to push this age out further. Reform leaders are the UK, Ireland and Italy which all have plans to push statutory retirement out to 68 and equalise the age for men and women. The biggest reform laggards are Slovenia, Luxembourg, Turkey, Korea, France, Slovak Republic and Greece all with retirement ages of 62 or below. Of this group Turkey (60 to 65), Korea (61 to 65) and France (61.5 to 63) have planned statutory retirement age increases. Luxembourg and Greece by contrast have no plans to increase their retirement ages.
These recent Swiss statistics highlight once more the urgent need for big changes to retirement and pensions. Obwalden currently has 28 pension aged residents per 100 of working age. By 2045 it will have 65 for every 100, a 229% increase.
Pensions at a glance 2015 OECD report (in English)
Future evolution of Switzerland’s population (in French)
Le Matin article (in French) – Take a 5 minute French test now
Note: (1) The full dependency ratio usually includes those under 15 and those over 65 together divided by the remainder of the population.
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