“The pension system is one of the great achievements of the welfare state”

One special feature of the Swiss pension system that does not exist in the same form in Germany, for example, is the third pillar. How would you assess this component?
Contrary to what many people think, the third pillar does not form part of general old-age provision but, rather, is primarily a tax-saving scheme. Pillar 3a, i.e. voluntary payments made into accounts that are blocked until the age of 60, offers tax advantages as an incentive to save, from which higher earners mainly benefit. Payments made by those on low incomes can even cause tax disadvantages, as the pay-outs are taxed independently of income. Consequently, about one third of those entitled to make contributions do not make any contributions to Pillar 3a at all, unless this is perhaps due to a lack of financial leeway. And pillar 3b is merely an exhortation to workers to make private financial provision and not to rely solely on the first and second pillars, i.e. it is an appeal to ‘personal responsibility’.

The baby boomers are gradually retiring. How robust is the Swiss pension system in the face of demographic change?
We should not encounter any problems in the next ten years. But if the decline in the relative size of the domestic labour force is not offset by increases in labour productivity or migration and if we do not introduce major reforms, the pension system could be in trouble for a few decades.

How can the pension system be reformed?
In all pension systems there are three reform options that are not mutually exclusive. Either you raise the retirement age, or you reduce pension benefits, or you increase pension contributions or the contribution base. After all, the retirement age for women was recently raised to 65. This alignment with the retirement age for men was only implemented by a very narrow margin – and against the wishes of most women. I do not see any majorities for raising the retirement age further in the next few years. Cutting pension benefits is probably just as difficult to push through politically. Therefore it will probably come down to increasing pension contributions or the tax-funded share.

If you could introduce just one fundamental pension reform regardless of political majorities, what would it be?
In 1969 the Party of Labour (PdA) proposed a pay-as-you-go, living-wage pension for everyone, which would not be determined by how much individuals earned and paid into the scheme during their working lives. Under the PdA concept, every citizen would have received a minimum pension of 500 Swiss francs (minimum at the time: 220 francs), which would have grown over time in line with inflation and economic growth. The maximum pension would have been capped at twice this amount. This initiative was clearly rejected in 1972. Such a fundamental systemic change could no longer be implemented today without considerable adjustment periods because there are now substantial pension entitlements arising from the funded second pillar. In the social sciences we talk about path dependency in such cases. Those who care more about social equilibrium among the generations of pensioners than about the continuation of income inequality beyond retirement will see the 1972 decision as a missed opportunity.

How can the social component be more strongly emphasised in the pension system without such a radical systemic change?
In the existing system this could be achieved by expanding the first pillar (AHV) and increasing the supplementary lines. Furthermore, you could remove the first two pillars’ focus on wages and extend the obligation to contribute to all types of income. In the long term, however, I would advocate a pension scheme that is fully tax-funded. Then you would automatically have social equalisation through tax progression, and the demands on the system would be negotiated as part of the political process.

In France there are currently massive protests against raising the retirement age to 64. Why are pension reforms so emotionally charged and so difficult to implement?
The pension system is one of the great achievements of the welfare state, and people appreciate that. The history of government-regulated pension provision is long, dating back to the 1870s in some countries (and to 1948 in Switzerland). In the absence of any state pension, people rely on handouts or support from their children when they retire. While they are still working, individuals have ample opportunity to boost their incomes by undergoing further education or increasing their working hours. Once they have retired, this opportunity usually no longer exists.