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UBS Outlook Switzerland: future of retirement provision – means, opportunities, risks
The three-pillar model of the Swiss retirement scheme has long been regarded as an exemplary solution compared to those of other countries. This pension system, however, cannot cope with the challenges posed by a declining working-age population, increasing life expectancies and low capital market yields. "Our proven pension system and its three-pillar approach deserve our attention and renewed efforts," emphasized Lukas Gähwiler, CEO UBS Switzerland, at a media event in Zurich. Although the reforms proposed by the Swiss Federal Council go in the right direction, they put the burden mainly on the younger generation. The booming real estate market is also a source of risk to the system. In particular, the controversial practice of withdrawing pension fund cash early to buy residential property needs to be examined in view of today's altered market conditions.
UBS Research is devoting its latest edition of UBS Outlook Switzerland to the topic of retirement provision. The study focuses on the reform, "Retirement Provision 2020," proposed by Federal Councilor Alain Berset and the controversial practice of withdrawing pension fund cash early to finance home ownership. The Swiss pension system has increasingly been falling behind in comparison to other countries due to the lack of reforms in recent years. UBS Research concludes that the reform proposed by the Federal Council, which goes to the consultation stage at the end of 2013, includes important measures to reform several key elements of the pension system. The burden is one-sided, however, since today's working population and its children will largely finance the reform. UBS Research also identifies risks to the retirement system in the sharp rise of real estate prices. "Any early withdrawal of pension fund cash to buy residential property needs careful consideration, since the home buyer and the capital of his pension fund are exposed to the risks inherent in real estate prices and interest rates, against which no hedging protection can be provided," said Daniel Kalt, UBS Chief Economist Switzerland.
For business owners, the enterprise's value represents a major part of their retirement provision. Succession arrangements, which may involve transferring the company to the next generation or selling it, have far-reaching consequences for the owner, his family, management and the employees. "The owner should therefore start to think about the right time to transfer or sell the business early on," emphasized Lukas Gähwiler, CEO UBS Switzerland, at a media event in Zurich. By transferring their life's work at the right time and in a professional way, business owners can secure the long-term future of their company and the jobs that depend on it.
UBS Research is optimistic about the Swiss economy. UBS economists expect economic growth of 1.8% this year and 2.0% next year. Economic performance is nonetheless very one-sided: while the domestic economy is booming, exports are stagnating. The free movement of people was and is a key requirement for sustaining strong economic growth. Its real source, however, is more likely to be found in expansive monetary policy. Despite the global flood of liquidity, a significant rise in inflation is not expected in the short term, neither at the global level nor in Switzerland. Despite this, it is not possible to rule out the possibility that the boom in the domestic economy could fuel inflation over the long run. Any unexpected rise in inflation could jeopardize the exchange rate floor.
As far as sector development is concerned, UBS Research sees a slight improvement in industry, where the negative trend has slowed in recent months in most sectors. The business position of many industrial companies nevertheless remains challenging. Only in the chemicals and food industries did companies rate their business position as good. It was quite a different picture for service companies. Except for tourism, all service sectors assessed their business situation as good.
In addition to analyses of real estate and financial markets, the supplement provided with UBS Outlook Switzerland includes an assessment of the Swiss equity and bond markets.
Daniel Kalt, UBS Chief Economist Switzerland
Phone +41 44 234 25 60, firstname.lastname@example.org
Veronica Weisser, UBS CIO Wealth Management Research
Phone +41 44 234 50 62, email@example.com
Caesar Lack, UBS CIO Wealth Management Research
Phone +41 44 234 44 13, firstname.lastname@example.org
Sibille Duss, UBS CIO Wealth Management Research
Phone +41 44 235 69 54, email@example.com
UBS outlook Switzerland: www.ubs.com/research
UBS publications and forecasts for Switzerland: www.ubs.com/economicresearch