Image: Getty

The adoption of the OASI 21 reform will have a positive impact on the long-term financial stability of pillar 1. It reduces the current financing gap by more than one-third (see chart below). The increase in value-added tax by 0.4 percentage point is the factor that contributes most to the reduction, at 20.3 percentage points. The core element of the reform, harmonizing the reference age for women with that of men at 65, reduces the gap by 17 percentage points. The compensation measures for the first nine cohorts of new pensioners counteract the reduction of the financing gap by 0.9 percentage points. By contrast, the measures on flexible retirement and incentives for longer working lives do not have a significant impact on the financing gap.

The bill will be enacted in 2024. The retirement age will be gradually increased by three months per year, starting in 2025 and concluding in 2028.

OASI 21 reduces the financing gap

The OASI 21 reform reduces the financing gap by around one-third – as a % of gross domestic product (GDP, base year 2019, productivity growth = 1.1%, real interest rate = 2.1%)

The content of the OASI 21 reform at a glance

  • Instead of talking about the retirement age, we now refer to the reference age. This serves as the starting point for a full pension.
  • The retirement age will be made more flexible so that the full OASI pension or a partial pension can be drawn at the age of 63 to 70. A deduction is applied to the OASI pension if retirement takes place before the reference age, and a supplement is added after the reference age.
  • The reference age for women and men will be harmonized at 65.
  • Compensatory measures will be introduced for nine transitional generations of women:
    • Lifelong OASI supplement, at regular retirement age
    • Lower reduction rates for women who retire early
    • Possibility of early retirement at 62
  • There are now incentives to continue working after the age of 65. Any gaps in pension provision can be filled up to five years after the regular reference age.
  • The standard rate of value-added tax will be increased indefinitely from the current 7.7 percent to a new rate of 8.1 percent.

Forward-looking signal

Following the adoption of OASI 21, the retirement age will be increased for the first time in 25 years. As a result, there is a chance that Switzerland will join other European countries in the future and continue to adapt the retirement age for men and women in line with demographic change.

Making the reference age more flexible was the first important step in this direction, as it signals to both companies and employees that it will be necessary for people to work for a longer period of their lives in the future. As a positive side effect, this could also alleviate the shortage of skilled workers in Switzerland.

Even if the financial situation of the state pension system is stabilized for the time being, however, it will only allow a short breather, as demographic change continues unabated: according to calculations by the Federal Social Insurance Office (FSIO), old-age and survivors’ insurance is expected to show an apportionment deficit again as early as 2029.

Prepare for retirement in a focused way

Do you know how much income you will have after retirement? Or how much capital you could accumulate with pillar 3a? Let us know which questions about retirement planning you'd like to discuss with us.

Old-age and survivors’ insurance in the clutches of demography

Switzerland is getting older and older. The number of people aged 65 and over will increase by around 80 percent by 2060. Yet the number of people of working age will virtually stagnate over the same period (forecast by the Federal Statistical Office, see chart below). Whereas in 2020 there were just under 3.2 persons of working age for every person of retirement age, in 2040 there will only be 2.3. Further reforms are therefore essential.

Sharp rise in the proportion of people aged 65+

Increase in age groups in the reference scenario for population development (indexed 2019 = 100)

OASI indebted to the tune of over CHF 650 billion

Even before the vote, the present value of total OASI pension promises exceeded the present value of future pillar 1 revenue by 125.7 percent of Swiss gross domestic product (GDP), equivalent to over CHF 900 billion (in 2019 prices). The implementation of OASI 21 reduces this shortfall to approx. CHF 650  billion. If we take into account the assets of the OASI compensation fund, which seem huge at around CHF 50 billion, we are still talking about a sustainability gap of almost 84 percent of GDP.

After the reform is before the reform

In the long term, the OASI pay-as-you-go system still disregards the intergenerational contract (see chart below). This is because the law grants the right to an OASI pension solely on the basis of the payment of contributions. This ignores the fact that this only fulfills the duty to the parent generation. In order to be entitled to a pension according to the intergenerational contract, the generation of children would have to be sufficiently large.

Intergenerational contracts in simplified form

Transfers (service receipt/service provision) are viewed from the perspective of the generation shaded pink. Source: UBS

Burden on the younger generations

Even though this reform was urgently needed and is a step in the right direction, it is problematic in terms of intergenerational fairness. This applies in particular to the increase in value-added tax, because this consumption tax, as a proportion of income, disproportionately affects low-income and young households. Most of the remaining OASI financing gap will also be a burden on the younger generations.

Each and every one of us can do something

This makes it especially important for people under 50 to address their private pension situation as soon as possible. With or without reform, personal responsibility is increasingly important. In the event of another reform, people over 50 can probably rely on an up-to-date pre-calculation of their pension and the protection of vested rights. But they, too, will sleep better if they obtain a clear overview of their situation through a comprehensive pension check. In addition, they should think about the future of their children in the debate about further reforms.

Solutions that are fairer in terms of distribution policy and therefore quick to implement are needed to ensure that children not only embody our future, but also have a future of their own without having to carry a heavy financial burden on their shoulders. Possible measures that involve the cohorts close to retirement age and pensioners participating in the restructuring process include a shortening of the period for drawing a pension, a reduction in pension amounts or a temporary attenuation of OASI pension increases.

The fundamental political challenge is to broaden the perspective of the over-50s, who are strong voters, and to let the younger generations participate in the social narrative about the future of the Swiss pension system. This applies to any reform of OASI.