«Pension Reform 2020» isn’t the first proposed change for stabilizing the Swiss retirement system that the people have rejected. The familiar systemic problems remain and will need to be tackled by the government as soon as possible.
In terms of occupational pensions, discussion about the minimum conversion rate of 6.8 percent for the mandatory part of occupational plans will continue. The current conversion rate doesn’t take sufficient account of higher life expectancies and lower interest rates. From an actuarial perspective, the rate should be significantly below 6 percent. The conversion rate of 6.8 percent results in pensions that are too high. The difference is financed by returns on assets. This means that active policyholders are cross-financing pensioners, something the pillar 2 system doesn't actually contemplate.
AHV on shaky ground
Financing the AHV also remains problematic. The state pension plan should have been strengthened by an increase in contributions and value added tax. Without counter measures, the current AHV fund of 34 billion Swiss francs (without the funds allocated to invalidity insurance) will be used up by 2030. By then, the already negative result of income vs. expenditure will have grown to an annual loss of 7 billion francs, meaning the government will have to fight for additional revenue in the years to come.
We can’t exclude the possibility that the next revision of the retirement system will have a more severe impact on the retirement age. If the question this time was whether to raise the reference age of women to 65 years, next time a retirement age of 67 could very soon be on the table.
Act responsibly
Uncertainty about the future of pillars 1 and 2 hasn’t lessened after September 24. Against this backdrop, pillar 3 remains an important pension tool. Begin planning your personal pension as soon as possible. Use pillar 3a to reach your retirement savings goals. Everyone who reaches an income subject to AHV contributions can make tax-deductible payments. Cross-subsidization does not happen. Whereas your contributions are managed collectively in mandatory pillars 1 and 2, you can realize your opportunities in pillar 3a to earn returns on the finance markets through individually tailored investment funds.
