Deloitte has proposed measures to strengthen the financial position of Switzerland’s first-pillar compensation fund AHV and generate higher returns in the second pillar pension system, but the ideas have met resistance from the pension funds association ASIP.
The consultancy examined in a study reforms that it said would be financially sound and could secure majority public support. The analysis follows last year’s failed referendum on the second pillar and the recent decision to introduce a 13th monthly pension payment, which is expected to strain AHV finances.
“In the first pillar, we propose doubling the assets in the AHV compensation fund to largely cover the expected deficits in the 2030s. Increased capitalisation initially costs money but then generates long-term capital returns,” said Dennis Brandes, senior research manager at Deloitte Switzerland and author of the study.
Rising costs during the build-up phase could be financed through a temporary increase in state subsidies, Deloitte suggested.
Doubling AHV’s assets to CHF100bn (€107bn), while maintaining returns over time, would generate CHF2bn more in investment income, covering a large share of the deficit expected from 2035 onwards, according to the consultancy.
Average annual returns of 3.9% would fully cover the projected shortfall, based on the Federal Social Insurance Office’s (FSIO) latest outlook published in August.
“We use the reference scenario and assume an average of CHF50bn of existing AHV assets, and projected average deficits between 2035 and 2040 of CHF3.9bn per year,” Brandes said.
The 3.9% target return is slightly higher than what AHV has achieved in recent years, but Brandes argued it is realistic. “Some pension funds achieve such returns. A bigger fund could invest at least some of its assets over the longer term and thus with higher returns,” he noted.
ASIP’s views
In the second pillar, Deloitte’s proposals include lowering the wage threshold for joining a pension fund and increasing contributions, which it said would generate more income.
The firm also suggested that employers should select pension funds more carefully, ideally involving employees in the process, so that choices result in higher average returns while maintaining adequate risk management.
ASIP, however, expressed strong doubts about the recommendations.
“The severely strained trust in the second pillar must be rebuilt [after the vote in 2024] before calling for further reforms,” director Lukas Müller-Brunner told IPE.
On the first pillar, he said the demand for higher state subsidies for the AHV is “unrealistic” in the current environment, as the government is focused on spending cuts. He also warned that strengthening the capital-funded component is problematic.
The Swiss system is designed so that the AHV operates on a pay-as-you-go basis, while occupational pensions are capital funded. Mixing the pay-as-you-go system AHV and occupational pensions is @dangerous”, Müller-Brunner said.
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