Strengths and weaknesses

In Switzerland, a typical individual with an uninterrupted career can expect a net (after-tax) replacement rate of at least 70 percent of their average former income. Over 80% of Swiss private pension funds stated a cover ratio of 100% or more at the end of last year. Company pension plans are free to set terms and conditions in excess of these minimums, and most offer benefits exceeding obligatory levels. The Swiss second pillar has accumulated large financial resources, equivalent to 113 percent of GDP. Based on the Pension Sustainability Index 2009, there is little need for pension reform in Switzerland.  

However, the Swiss system also has some weaknesses. The second pillar is fragmented (more than 4,000 funds with affiliates), lacks transparency due to non-uniform accounting practices, and has achieved low investment returns. As the first pillar is financed as a pay-as-you-go system, experts foresee that Switzerland will face similar problems as elsewhere. The old-age dependency ratio will increase from 25% in 2010 to 49% in 2060. There are four people of working age now for every pensioner. In 2060, there will be just two people of working age for every person of pension age in Switzerland.

Further pension reforms in Switzerland seem inevitable

The longer pension reforms are being postponed, the greater the burden that is placed on future generations. Unfunded public pension systems pose political risk if promises to future retirees cannot be met. Pension reform is both technically and politically complex but more and more countries are beginning to address the problem by changes in eligibility (such as retirement age), changes in the rate of contribution or the population of workers on which contributions are calculated, or changes in the structure of benefits. Most certainly, pension reforms in Switzerland, as with other countries, seem inevitable.

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