SESSION 4: Panel Discussion: Reform of the Swiss Pension System?

Background for the session:
The Swiss pension system is in urgent need of reform. Its first pillar, a pay-as-you-go state run system is running into large deficits very soon. Swiss policy makers have been trying to reform the pension system for decades. However, reforms have as yet failed to pass the necessary test of popular referenda that Swiss direct democracy offers.

This is true not only for the pension system’s first pillar, but also for the second, funded pillar. Swiss pension funds need to operate in a relatively rigid framework, with key parameters set by law. Currently, these include a minimum 1 percent return on assets along with a fixed conversion rate of 6.8%. These requirements imply an annual return on assets of about 4.8% which pension funds today do not reach on average.

On the one hand, retirement ages have not been adapted to increasing longevity. On the other, low interest rates have contributed to diminishing returns on assets. To cover entitlements, pension funds redistribute returns from the extra-mandatory part of retirement savings to the mandatory one, resulting in redistribution from young to old employees.

The demographic shift of an ageing society is not unique to Switzerland, and neither are low interest rates. All developed economy countries face similar challenges today. However, compared to most other European countries, Switzerland now has the lowest statutory retirement age. Moreover, Swiss pension funds’ performance have lagged behind their peers.

Format of the session
In this session three different views of the Swiss pension system reforms are offered. Mark Horton will open the discussion with a presentation from an international perspective. As the International Monetary Fund’s Mission Chief to Switzerland, Mark Horton can draw on this multilateral organization’s insights from near-global membership.

Subsequently, a panel – including Mark Horton – will discuss pension reform from different angels: international and domestic, from a political and from a capital market perspective. Issues such as the following will be addressed:

• How sustainable is the Swiss occupational pension system?
• How fair is the current regulation for the different generations?
• What are the parameters for a financially sustainable occupational pension system?
• Can the pension funds’ return on assets be increased? If yes, how?
• What is politically feasible and what needs to be considered to ensure the popular vote on pension reforms?