Switzerland’s much discussed work pension reform was accepted by parliament this week after a number of changes, reported Parlament.ch.
Like Switzerland state pension, compulsory work pensions are under strain as the population ages and people live longer. This week, Switzerland’s parliament voted 113 versus 69 in favour of a package of reforms.
Key reforms include lowering annuity rates from 6.8% to 6% and transitionary top up payments, but only for those with modest pension pots. Annuities are constant payments made until the holder dies. Someone with CHF 100,000 in savings would get CHF 500 per month for the rest of their life with an annuity rate set at 6%.
Shifting the annuity rate from 6.8% to 6.0% will reduce annuity incomes by 12%. Over a transition period of 15 years, those reaching retirement age during the first 5 years with work-related pension savings of CHF 215,100 or less will receive an extra CHF 200 a month for 5 years. For the 5 years after the extra payment will be CHF 150 per month and then CHF 100 for those retiring 5 years after that. Those with pension pots between CHF 215,100 and CHF 430,200 will get a reduced supplement and those with more than CHF 430,200 will get nothing. At 6% someone with CHF 430,200 saved can expect CHF 2,151 per month.
The transitionary compensation will effectively redistribute wealth from those with more to those with the least. Earlier plans envisaged compensating everyone of a certain age regardless of savings. But this was dropped in the final draft.
Another agreed change was the salary level at which work pensions are required. This will fall from CHF 22,050 to CHF 19,845, providing another 100,000 people with work pension savings.
In addition, the minimum savings percentages will change. Currently these rise with every 10 years of age. This penalises older workers by making them more expensive. These will be changed to two bands: 9% up to 44 years old and 14% after. Previously they rose at 55, making it difficult to find work for those at the point where age discrimination often kicks in in Switzerland.
Beyond the 15 year transition period, pensioners will have to get by on a 6% annual payment. This will mean hoping for improved investment returns or saving more for longer. With rising healthy life expectancy working longer is becoming more possible. Between 2007 and 2017, healthy life expectancy rose by 2 years in Switzerland. For men it rose to 79 and for women to nearly 80. Working for a few extra years, at least part time, is already possible for most. It’s currently possible to continue paying into Swiss work pensions until the age of 70. An extra 5 years of pension savings could make a substantial difference to monthly retirement payments.
Like all legislation in Switzerland, upon the collection of 50,000 signatures this can be challenged in a referendum. Some on the left have already called for a vote to prevent this week’s pension reform coming into force next year. Some of those calling for a vote would like to see more generous pensions boosted for rising living costs. But without higher investment returns and later retirement, an unpopular measure, it will be difficult to make the numbers add up.
As the population ages and the workforce shrinks, notwithstanding future productivity boosting advances in technology or significant immigration, there will be more retired people supported by fewer workers. With less going in there will need to be less going out. A shrinking workforce also risks putting pressure on wages and in turn inflation as companies compete for a shrinking pool of workers, stretching fixed annuity payments even further. The most obvious way to attenuate these forces is later retirement. But few want to hear this. A plan to extend the retirement age to 66 (up from 65) and then link it to life expectancy (to limit retirement years to 20% of life) was flatly rejected this week by 30 versus 11 in Switzerland’s upper house.
Parlament.ch article (in French) – Take a 5 minute French test now
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