Pensions In Switzerland: Parliamentary ping pong
A political stalemate is holding up Switzerland’s Altersvorsorge 2020 pensions reform package. And now time is running out, as Barbara Ottawa finds
At a glance
• There is agreement in parliament on the conversion rate but no consensus on compensation levels for lower pensions.
• The AV2020 package is being sent back and forth between the two parliamentary chambers.
• The interim compromise using sales tax revenues runs out at the end of 2017, which imposes time pressure for a political settlement.
• The retirement age for women is set to rise to 65.
“The whole reform currently has a very tight time limit,” explains Jérôme Cosandey from the think tank Avenir Suisse. This is because an interim political solution to top up the national disability insurance scheme with sales tax proceeds will come to an end by the end of 2017. “Politicians want to use the 0.4% for other areas of public spending rather than cut the sales tax,” says Cosandey. A sum of 0.1% has already been earmarked for the railway infrastructure fund. The rest could go be used to finance the first pillar AHV/AVS. However, for this to happen, the electorate needs to approve this re-purposing in a referendum by autumn 2017 at the latest.
This means that the whole Altersvorsorge 2020 (AV2020) reform package will have to pass both houses of parliament by March 2017. Only then can the public have its say. “As the sales tax legislation is part of the constitution, it has to be put to a referendum but legally the changes to the first and second pillar pension legislation do not,” notes Cosandey. “It actually might be better for all political parties if the public does not vote on the whole package because each political camp would have to concede defeat on one or more points.”
A new draft was published on 29 September (see Agreement on 6% and 65 years) as the Nationalrat (Conseil national), the larger of the two chambers, amended the proposal it had received from the second chamber, the Ständerat (Conseil des États). The latter now has to review these amendments and send them back to the Nationalrat – in time for the December session.
For Cosandey, the tight time line is “an opportunity but also a danger” because some changes might be passed more or less unchecked as to their long-term effects. “But, if the reform package does not make it through all stages by 2017 then the deadline pressure is off and, as 2018 is just one year before the next general election, I fear that this might lead to a stalling in the reform debate,” he says.
Werner Hug, pension fund expert and commentator on the Swiss second pillar, says it is possible that the issue of retirement provision, especially a higher retirement age, will have to be taken up again in the next parliamentary term: “For now the compromise might be to have the same retirement age of 65 for men and women, to flexibilise retirement between 62 and 70 and to lower the conversion rate to 6%. Compensation will either be through the second pillar if the conservatives win, or the first pillar if the left-wing wins.”
The public versus right and left
Surprisingly, the Swiss public rejected a general increase to first pillar pensions in a referendum on the so-called ‘AHVplus-initiative’ at the end of September by 60% to 40%.
Cosandey says it is hard to tell how, or if, the vote might influence the debate on AV2020. He quotes statistics according to which 80% of the young population rejected the initiative by the unions demanding an immediate 10% increase to first pillar pensions.
But, while there is an obvious centre-left versus centre-right split in the vote, the referendum showed how parties were able to convince their supporters of their positions: “It was very interesting to see that within the conservative SVP over 60% of the people had been in favour of the hike in pensions six weeks before the vote. But, on the Sunday of the vote two-thirds finally supported their party’s position against the initiative,” explains Cosandey.
“The fronts between right-wing and left-wing are hardened,” says Hug. “The left-wing is interpreting the vote on the AHVplus initiative to mean that 40% want a higher AHV/AVS. At the same time, the right-wing says 60% do not want an increase by 10%.”
But Hug emphasises: “The ‘no’ in the referendum on AHVplus does not mean people do not want compensation for future pension cuts – compromises are needed.”
Switzerland is currently a good example of how long-term topics like pensions can be torn between short-term election decisions: When the government presented its first draft to parliament in 2013 the left-wing still had the majority.
“Because the conservative SVP won the last general election in 2015 there are also new people in the parliamentary commissions,” Hug points out.
This also changed the view on pensions: “Some of the points that would have been difficult to achieve consensus on two years ago, when the first draft was published, are almost common sense today, like aligning the pension age for men and women at 65 years,” says Cosandey.
Young versus old
One effect of the AHVplus vote, according to Cosandey – “at least until the topic cools off again” – has been to spark debates around other issues of ageing and retirement provision like fairness of financial burdens on various generations.
“Financing the AHV fund via the sales tax means that not only the younger generation is affected but the growing number of retirees,” says Hug, who points out that achieving a balance in the intergenerational burden is key to a successful pension reform: “A balanced pension reform should not only focus on retirees.”
According to Hug, the task of convincing voters will fall to the conservatives. “They have to explain to the voters that if no measures are taken the first pillar will be bankrupt by 2025 and the AHV fund will be depleted. After that, the first pillar will generate an annual debt of CHF8bn [€7.3bn].” This bleak picture can be avoided if a compromise is reached in time – preferably before the baby boomers start to retire by 2020.
Agreement on 6% and 65 years
Major points both parliamentary chambers agree on:
✔ Gradually raising the statutory retirement age for women to that for men (65)
✔ Flexibilisation of retirement between 62 and 70, with 65 as the ‘reference age’
✔ Cutting the minimum conversion rate (Umwandlungssatz) for mandatory BVG/LPP second pillar savings from 6.8% to 6% over the next three years.
✔ Insurers (including those offering a Pensionskasse) only have to pass on 90% of their profits (legal quote) to clients. The government had proposed an increase to 92%.
✗ Disagreement on compensation and AHV/AVS funding: to compensate for the 12% cut in BVG/LPP pensions due to the lower conversion rate and to guarantee first pillar (AHV/AVS) funding
The Ständerat wants:
• to increase AHV/AVS first pillar pensions by CHF70.
• to raise the allowed joint AHV/AVS pension for couples from 150% to 155%.
• other amendments to AHV/AVS pensions, such as cutting the so-called Freibetrag (the amount for which people working beyond the retirement age do not have to pay pension contributions).
• any further compensation to come from the central second-pillar security fund (Sicherheitsfonds).
• to help fund the AHV by increasing sales tax by 0.7% to top up the 0.3% available from disability funding from 2018.
The Nationalrat (in its current make-up with a conservative majority) wants:
• to decentralise compensation and leave it to the individual Pensionskasse.
• to lower the entry age into the second pillar to 21 (currently 25)
• to slash the so-called Koordinationsabzug, or cross-referencing BVG/LPP contributions with first pillar pensions. This would make more people (especially with lower income) eligible to have a Pensionskasse.
• the government to ‘de-politicise’ technical parameters like the conversion rate (Umwandlungssatz) and the minimum interest in Pensionskassen (Mindestzins).
Political decisions taken on those rates are to be replaced with calculation algorithms.
• to ease the burden on the AHV/AVS by cutting additional state pensions for retirees caring for children (Kinderrenten) and pensions for widows and widows and widowers (Witwenrenten).
• to increase sales tax by another 0.3% on top of the 0.3% available from 2018.
• an automatic rise in the retirement age to 67 should the AHV/AVS fall under a certain funding threshold and to increase sales tax by a further 0.4%.
The people want:
• This will depend on how well parties can rally their supporters and what the public can vote on. Tax increases have to be accepted by the electorate, according to the constitution. Whether or not the whole reform will be put to a referendum remains to be seen.