Retirement OASI 21 accepted – much remains to be done

The OASI 21 reform reduces the financing gap by around one-third – as a percentage of gross domestic product (GDP, base year 2019, productivity growth = 1.1%, real interest rate = 2.1%)
Sources: FSO, FSIO, FOPH, FDF, FZG, UBS 2022

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.

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.

Increase in age groups in the reference scenario for population development (indexed 2019 = 100)
While the number of people in employment remains more or less the same, the number of pensioners is rising rapidly.
Sources: FSO, FSIO, FOPH, FDF, FZG, UBS 2022

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.

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

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.

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.