More and more people are questioning the viability of living for two decades or more without working, particularly when the population is aging and the pension system is crumbling.
However, rather than raising the official retirement age, some favour financial incentives to tempt people to work longer. The percentage of people over 65 in Switzerland working is low (12.5% in 2018), although it is slowly rising. It was 9.5% in 2010.
This week, Peter Hegglin, a member of the Council of States, Switzerland’s upper house, suggested relooking at the incentives in place, according to the newspaper Le Matin.
Currently, an average man foregoing the state pension until the age of 70 loses out financially because their full monthly pension only rises from CHF 2,350 to CHF 3,090 if they wait until 70 before collecting it. Over five years they give up CHF 141,000.
If they collected the monthly CHF 2,350 and invested it at 5% over five years, it would grow to a sum large enough to generate the CHF 740 difference between the two pension amounts for more than 45 years before running out. You’d need to live until 115 to breakeven. Someone who collected and invested the money would leave behind an extra CHF 140,000 in their bank account if they died at 85, assuming they drew only the extra CHF 740 a month difference and earned an average annual return of 5% on the balance over 15 years – this is because the money coming in is almost as much as the CHF 740 going out. Even a pessimistic 2% annual return would leave a balance of CHF 45,000 at 85. 1% would leave CHF 25,000. The current uplift essentially leaves a large incentive to collect the pension as soon as possible.
To create an incentive to delay pension payments, the higher monthly pension at 70 would need to be above CHF 3,600, assuming 5% annual returns, and above CHF 3,400, assuming a return of 3%. However, offering this would damage pension finances further. At the same time, it is important to consider taxes on the extra earnings generated, which would probably make up for the extra pension cost.
One of Hegglin’s suggestions is to lower social security taxes after the official retirement age and to allow any extra years of work to make up for missing years of contributions to both state and private employee pensions. Another is to create special lower tax rates for this group.
The Council of States supported Mr Hegglin’s proposal by 26 to 7.
Meanwhile, the Federal Council is working on a plan to reform state pensions, which it will present to parliament in autumn. It is already considering some of Mr Hegglin’s suggestions but is not keen on targeted tax incentives.