Switzerland’s parliament voted today on whether the official retirement age should be allowed to rise to 67. With 106 votes for, and 90 against, the National Council approved a plan to deal with the financial challenges of providing pensions in an era with more old people who are living longer.
The plan includes automatic hikes in the retirement age should the state pension pot move into the red. In the absence of a plan to plug the gap, the state retirement age will automatically rise by 4 months a year whenever state pension funds no longer cover at least 80% of outgoings, up to a maximum age of 67. The PLR (FDP), Green Liberals and UDC (SVP) all pushed for this mechanism.
The plan also calls for a VAT rise of 0.6% to provide additional funding. Those on the left don’t think this is enough. Switzerland’s Federal Social Insurance Office, thinks despite this, the 80% trigger point will be reached by 2033. The first VAT increase of 0.3% should be introduced on 1 January 2018.
In addition, the federal government will increase its contribution to the state pension pot to 20% of the total.
It was also decided by 137 votes to 57, to raise the state pension age of women to 65, in line with men. A system of flexible retirement was also approved, within an age range from 62 to 70. Anyone retiring before 65 will have their pension cut by 6.37% per year. Anyone retiring after 65 will have their pension boosted by between 5.2% and 31.5%, but continue to pay into the state pension pot while working.
Later in the afternoon, parliament tackled changes to second pillar pensions. Low investment returns have put this savings-based element under pressure. By 141 votes to 51, parliament decided to reduce minimum second pillar pension payments from 6.8% to 6.0% a year. This means CHF 100,000 of savings will pay CHF 6,000 per year instead of CHF 6,800. The rate change will by phased in at a rate of 0.2% per year.
Switzerland’s pension system has three elements: first pillar – paid from deductions made by those currently working to those who are retired, second pillar – paid from savings made by employees in the form of compulsory salary deductions topped up by employers, third pillar – tax advantaged private savings made by individuals over their working lives.
The first pillar pension is the one causing government most headaches. By living longer, those receiving it are collecting more of it, while proportionally fewer young people are around to pay for it.
In 2015, average life expectancy in Switzerland was 80.7 for men and 84.9 for women. In 1970, an average woman at 65 could expect to live for 16.2 more years. In 2014, the same number was 22.4, an extra of 6.2 years or 38% longer. The same figures for men were 13.3 years in 1970 and 19.4 years in 2014, a increase of 6.1 years or 46% longer.