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The number of people aged 65 and over in Switzerland will increase by around 51 percent by 2040, while the number of people of working age will remain virtually the same. It is precisely this imbalance that will undermine the stability of pillar 1, ultimately changing the financial scope of the AHV. Under current legislation, pensions to be paid by the AHV will exceed future income by around 126 percent of Switzerland's gross domestic product (GDP) or roughly CHF 900 billion. The assets of the AHV compensation fund are tiny by contrast, at only CHF 50 billion.

AHV 21 – an improvement for all?

The AHV 21 reform currently under discussion has the potential to increase funding for pillar 1. Raising the retirement age for women to 65 and increasing VAT by 0.4 percent would reduce the current funding shortfall by about one third. At almost 90 percent of GDP, however, the gap is still wide. The costs of this reform will be borne by younger generations (see graphic).

Younger generations will finance AHV restructuring

Additional life-time costs due to the AHV 21 reform by age. Figures in CHF 1,000, base year 2019, productivity growth = 1.1 percent, real interest rate = 2.1 percent Sources: FSO, FSIO, FOPH, FDF, VBA, UBS 2022

AHV is not the only debit mountain

With an explicit public debt of 26 percent of GDP (2019), Switzerland's position is exemplary by international standards. However, if we add the implicit national debt – state pensions, health insurance, nursing care, supplementary benefits and unemployment – of over 300 percent, Switzerland’s actual debt ratio amounts to almost 330 percent of GDP. Minus its existing explicit assets of 48 percent of GDP, Switzerland’s total debt is around 280 percent of GDP. This does not take into account the costs necessary for transition to a more sustainable economy and society.

Future outlook and solutions

Children may be the future, but they need a healthy basis for their own future. The costs of higher VAT and AHV contribution rates, as well as the financing of the AHV via the state budget and central bank profits, will be borne mainly by the young and future generations. Measures that require older people to bear some of the costs include shorter periods in which a pension can be drawn, lower pensions or temporarily halting increases in AHV pensions. Two main political challenges will be to broaden the perspective of voters aged 50 and over, and to encourage younger generations to take part in shaping the future of Swiss society.

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