Switzerland to vote on government’s pension reform plan

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In much of the developed world, pension finances are squeezed as populations age, especially baby boomers. The Swiss government has a reform plan. However, some who do not like it have called for a referendum to oppose it. Arguments for and against the changes are released ahead of a vote on September 25, 2022.

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The proposed changes, dubbed AVS 21 (AVS 21), include raising the state pension age (AVS/AVS) for women from 64 to 65, the current age for men and greater flexibility in the timing of retirement – ​​those who choose to retire earlier receive smaller payments and those who delay receive more.

In addition, there is a separate vote on whether to raise VAT from 7.7% to 8.1% (reduced rate from 2.5% to 2.6%) to help finance future deficits of retirement.

A key argument against the plan is that it is unnecessary. The committee against the reform affirms that the Swiss public pension by distribution (AVS/AVS) is in good financial health. In 2021, more was collected than paid out in pensions and reserve assets amounted to 50 billion francs.

In 2021, there was an AVS/AVS surplus of 2.6 billion francs. However, a significant funding gap between what was paid by workers and what was paid to beneficiaries was bridged by a payment of CHF 9.5 from the federal government. Without this significant boost financed by federal taxes, the surplus of 2.6 billion francs would have been a deficit of 6.9 billion francs. Such a large deficit would wipe out existing reserve assets in about 7 years without additional funding from taxes.

Also, anti-reformers claim that the more women enter the workforce, the more workers there will be to support retirees. In 2021, the activity rate was 72.7% for men and 62.2% for women. However, closing this gap will probably not be enough to balance the books. The Federal Social Insurance Office (OFAS) says there were 6.5 people of working age for every pensioner in 1948, but only 3.2 per pensioner in 2020. Anti-reformers say the figure of 6 .5 is misleading as most women were not on the payroll in 1948. but are now. In response to this challenge, OFAS has provided alternative figures that take into account the number of active workers instead of those of working age. This brings the 1948 figure down from 6.5 to 5.5 workers per retiree and reduces the 2020 figure to 3.1 from 3.2. So there is a difference but it is not big. And the population continues to age, which will reduce the number of workers relative to retirees.

Another suggestion made by those opposed to the government’s reform plan is to fund any shortfall in profits from the Swiss National Bank (SNB), Switzerland’s central bank. But relying on central bank largesse for funding is risky. The central bank focuses on maintaining monetary stability. Sometimes it generates profits. This sometimes results in losses. When monetary policy is expansionary and the resulting assets held by the SNB appreciate in value, it can generate large profits, as it has in recent years. However, when the Swiss franc strengthens and the value of assets crashes, the bank can generate significant losses as it did in the first half of 2022, when losses on assets denominated in foreign currencies reached 97, 4 billion francs.

Another argument against aligning the retirement age of women with that of men is the inequality of pensions. The committee against the reform says that women currently receive 37% less pension than men when work-related pensions are included. This largely reflects a history of households where typically only men had paid employment. Among young workers, the gap is smaller. In addition, couples who stay together in retirement collectively benefit from the pensions of both laws and the work-related pension splitting laws in the event of divorce that help balance things out when couples separate.

The Federal Council, Parliament and the Council of States are all behind the AVS 21 reform. In Parliament, 126 are in favour, 40 against and 27 abstentions. In the Council of States, the Swiss upper house has 43 votes for, no one against and no abstentions.

The latest polls, published by RTS, suggest that the reform will be accepted by voters. A poll carried out on September 14, 2022 by the SSR shows 59% in favor of equalizing the retirement age and 63% in favor of increasing the VAT. However, if the voting results follow the latest polls, many are likely to be unhappy. Groups opposed to reform include women (51% against), Green Party supporters (63% against) and socialists (70% against). And French speakers are much less likely to support the reform (47% in favor) than German speakers (64% in favor).

More on this:
RTS article (in French) – Take a 5-minute French test now

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