Pensions 2020: Federal Council defines guidelines for a comprehensive reform of the 1st and 2nd pillar
Bern, 21.11.2012 - The Federal Council has defined the guidelines for a sustainable pension system, thus laying the foundations for its extensive "Pensions 2020" reform programme. In doing so, Federal Council has taken a holistic approach that harmonizes and takes collective account of benefits under the 1st and 2nd pillar. The needs of Switzerland's population are central in this regard. People want the peace of mind of knowing that their pensions will not depreciate and will continue to be financed. The Federal Council has instructed the Federal Department of Home Affairs to set out the key tenets of "Pensions 2020" on the basis of these guidelines, and to present its findings to the Federal Council by next summer.
The Swiss pension system faces big challenges. People are living longer, another babyboom generation will soon be reaching AVS retirement age, and investment income has been lagging behind expectations for years. This has tangible consequences for both pension pillars. The AVS's capital reserves will depreciate continuously from around 2020. Minimum statutory pension fund benefits are inadequately financed.
The requirements of Switzerland's population have also changed. Only around a quarter of people who reach AVS retirement age now claim their pension; the majority want or require more flexible ways to negotiate the transition into retirement.
Guidelines for reform to command majority backing by 2020
Attempts in recent years to adapt the pension system to some of these trends have failed. The 11th AVS revision of 2004 fell at the referendum hurdle and then in 2010 at parliamentary level. Likewise, an adjustment to the conversion rate was rejected in a referendum in 2010. The Federal Council therefore believes that a holistic, comprehensive approach to the issue is the only effective way to proceed. It takes an integrated view of both pillars in the pension system, and wishes to reform them in such a way that mutually harmonizes their respective benefits and financing.
Based on the current financial outlook for the AVS, any reform of the pension system will have to take effect from 2020 at the latest. In the Federal Council's view, the preceding years must be used to ensure a balanced reform package that finds acceptance at political level and among the population. Reform needs to work this time. Otherwise, Switzerland's pension system is in jeopardy. The Federal Council believes that a draft paper can garner majority support provided it adheres to the following key points:
- Harmonize reference age for men and women at 65 years (AVS and LPP)
- Flexibilize AVS and LPP retirement provisions in a coordinated and actuarially appropriate manner
- Incentives for continued employment until the reference age and beyond
- Reduce the attractiveness of early retirement; in particular, increase the threshold of 58 as the earliest retirement age for occupational benefit plans
- Adjust the LPP minimum conversion rate to take account of higher life expectancy and changes in the interest rate environment
- Compensatory measures necessary to maintain level of benefits, including for the intermediate generation
- Evaluate institutional measures for the purpose of expanding FINMA supervisory control to ensure effective protection of insured persons, improve transparency on the part of insurers and achieve a more balanced distribution of profits among insured persons and shareholders
- Evaluate the necessity of adjusting benefits and contributions in line with economic and social changes
- Evaluate additional financing
- Devise an intervention mechanism, based on the key points of AI revision 6b and in accordance with specific AVS intervention thresholds
- Simultaneous proposals concerning reference age harmonization and an intervention mechanism
- Evaluate the possibility of linking the federal contribution to VAT earnings
By next summer, the Federal Department of Home Affairs will submit a discussion paper to the Federal Council that sets out the key tenets of "Pensions 2020" and evaluates the programme's concurrent financial, social and economic impact in detail. This should then serve as the basis for drawing up the draft reform proposal and submitting this for consultation at the end of the year.
Address for enquiries
Director of the Federal Social Insurance Office (FSIO)
031 322 99 66