A new report from the Tages-Anzeiger has suggested that the generation of people retiring today will receive less in pension than those who retired decades earlier. The two studies quoted in the report found that those aged between 58 and 68 years old will be most affected by what the newspaper called a “pension hole.”
Recent retirees in Switzerland set to be worse off
With Switzerland set to vote on boosting retiree finances through a 13th month of pension, questions regarding how well-off older generations are have come to the fore. For instance, the latest government data, quoted by the Tages-Anzeiger, found that on the one hand, pensioners on average tend to have more wealth than people who work, while on the other, 20 percent of the elderly population are either poor, at risk of poverty or are impoverished.
What's more, according to a 2023 study from the Vermögenszentrum (VZ), those coming close to retirement or have only recently started claiming their pension are set to be worse off than those who retired before 2021. “The people most affected today are 58 to 68-year-olds with medium to higher incomes; their pension loss will be the highest,” noted study author Karl Flubacher.
Swiss pension payments set to be smaller in future
This is backed up by a similar study produced by Credit Suisse in 2020. The study from the bank involved comparing a person with a final salary of 100.000 francs per year who retired in 2010 to someone younger with an identical career path, duration and wage (with the addition of inflation), who worked until 2025.
They found that while the 2010 retiree received 57.000 francs a year through first and second-pillar pensions, the 2025 retiree would only receive 49.000 francs or 8.000 francs a year less. When all pension pillars are taken into account, the older person’s pension payments amount to 57 percent of their salary before retirement. For the younger person, it was 46 percent.
Smaller pensions blamed on interest and conversion rates
Flubacher explained that the phenomenon highlighted by the two studies can be explained by two effects. First, he noted that those retiring in the next few years will have made their biggest pension contributions (as a percentage of their income) in the last decade. This period was epitomised by extremely low interest rates, meaning those retiring soon would have gotten a lot less for their money than previous generations.
The second reason is that the majority of pension providers have lowered their conversion rates in recent years. This rate is used to determine how much pension savings are paid out over a period. For instance, if the minimum conversion rate is 6,8 percent, for every 100.000 francs of savings, providers pay at least 6.800 francs a year.
Flubacher explained that the average conversion rate for all pension funds in Switzerland has fallen from 6,8 percent in 2008 to 5,4 percent in 2024, a 20 percent drop - however, he conceded that this figure does not take into account the fact that many providers compensate pensioners who have seen their rates fall. Nevertheless, “Overall, pensions have fallen significantly in recent years and will continue to fall,” he noted.
Those under 50 should receive more pension when they retire
While things look bleak for 58 to 68-year-olds, Flubacher concluded that things are looking brighter for those under 50. He predicted that while the conversion rate will remain low, higher interest rates brought about by inflationary pressures should see workers get more for their money once they reach their twilight years.