Pension reform in Switzerland: What expats need to know
The Social Committee of the Council of States has confirmed its plan to reform pensions in Switzerland. The aim of the scheme is to make sure pensioners are guaranteed benefits in the future, as people live longer and fewer people enter the workforce.
Switzerland hopes to guarantee pensions for future generations
Like most countries in Europe, Switzerland is struggling to pay for its pension schemes. As more people retire, life expectancy increases and fewer young people begin work, there is concern that current pensions will become unaffordable in the future. Of particular concern is the second-pillar pension scheme - the pension system paid for by salaries and contributions from employers, where payouts are regulated by the state.
To combat the threat of insolvency in the second-pillar, the commission voted to change the so-called minimum conversion rate from 6,8 percent to 6 percent. This will coincide with raising the pension age for women to 65 years.
The minimum conversion rate essentially determines how much your second-pillar pension will be. For example, a person with second-pillar retirement savings of 100.000 Swiss francs would receive 6.000 Swiss francs a year instead of 6.800 francs a year under the new scheme.
Pensioners in Switzerland compensated for loss of earnings
To compensate for the loss of earnings, people who take out pensions in the next 20 years with an annual income of less than 100.380 Swiss francs are to receive a supplement. This will start at 2.400 Swiss francs a year for the first five cohorts, then reduce every five years down to 600 Swiss francs by the end of the scheme. People with salaries over 143.400 Swiss francs a year will receive a reduced subsidy. In all, 90 percent of retirees over the next 20 years will benefit from the extra money.
According to pension association Asip, this compensation is unnecessary, as once the effect of the supplement is taken into account only 14 percent of the workforce will be financially worse off due to the change in conversion rate.
Government hopes new plan will stabilise Swiss pensions
The plan has received glowing support from politicians across the spectrum, who say the plan successfully compensates for the loss of earnings for pensioners by subsidising those affected. The government hopes that the new plan will force people to save up more money and build up savings accounts to become more self-sufficient. However, the plan has been criticised by trade unions, who argue that a focus on saving for retirement will leave working people worse off in the present.
The social reform passed the committee almost unanimously, with only three abstentions. While the plan still has significant hurdles to overcome, including a referendum in November, Watson noted that this is one of the few moments where pension reform has the support of most major parties.