On 24 September 2017, the Swiss electorate will vote on whether to accept a package of pension reforms.
Switzerland has a pension system with three parts. The first is a universal monthly payment funded by the social security system. Compulsory deductions from the salaries of those working fund payments to current retirees. This is known as the first pillar. The second part is a highly regulated compulsory personal pension funded from salary deductions. These are largely used pay annuities. This is known as the second pillar. The third and final part or third pillar is an optional private pension. Payments into these three pillars are tax deductible.
The foundations of pension systems around the world are being shaken by three main forces. Theses same forces, which include an aging population, longer life expectancy and lower investment returns, are exerting pressure on the pension system in Switzerland.
All or nothing
Switzerland’s government, aware of these challenges, has come up with a plan called pension 2020. Broadly it has two parts, tweaks to the first two elements of the system, including an increase in social security taxes, and a hike in VAT to better fund pensions. Each of these is subject to a vote. If either fails then they both fail.
The proposed adjustments include equalising the retirement age for men and women. Currently it is 64 for women and 65 for men. Life expectancy by 2020 is expected to be 88.8 for women and 85.2 for men. In addition, the rules would be adjusted in favour of those with smaller personal pensions. First pillar payments would be increased while minimum annuity payments on second pillar savings would be reduced from 6.8% to 6.0%.
For future retirees, first pillar payments would increase by CHF 70 per month for single people and CHF 226 for married couples. The relatively larger increase for married couples is a response to the criticism that current payments penalise marriage. The change would take what a married couple receive from 150% of what a single person receives to 155%.
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Another change would allow retirement flexibility between the ages of 62 and 70.
Then in 2021, social security taxes would rise 0.3%. Half of the 0.3% rise in social security taxes would be payed directly by the employer out of sight of the employee.
In addition, VAT would rise from 8% to 8.3% in 2018 and from 8.3% to 8.6% in 2021.
Position of the Federal Council and Parliament
The Federal Council and Parliament recommend voting in favour of the proposal. Majorities of the two chambers of Switzerland’s government voted in favour of the reform. Parliament voted 101 for, 92 against, with 4 abstentions, and the States Council voted 27 for, 18 against, with no abstentions. Both of these votes were quite close, underscoring the controversy surrounding the plan.
Arguments against the plan are numerous. Some think raising the retirement age for women is unfair, while some think raising VAT is. Others think the changes are insufficient to fix the problem and that the increases in first pillar payments are a step backwards.
A cross-party campaign against the package says it burdens young workers while overlooking current retirees, who will pay the extra VAT but not qualify for the first pillar pension increases.
The main parties
Of the main political parties, the Swiss People’s Party (UDC/SVP) and the Liberal Party (PLR/FDP) are against the reform. They think it unjustly penalises some without solving the problem. The Christian Democratic People’s Party (CVP/PDC) and the Socialist Party are both in favour of it. Alain Berset, the federal councillor behind the plan, is a member of the Socialist Party.
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Proposed constitutional amendment (in German)
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