Former chief civil servant Serge Gaillard on pensions: “I notice a certain degree of fear-mongering”

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Mr Gaillard, if you had to rate the Swiss pension system, what would it be?
Serge Gaillard: If 6 is the best grade, then I give the Swiss pension system a grade 5 – so good.

What distinguishes Swiss pension provision?
In Switzerland we have remarkably stable financing of the pension system – at least compared to the catastrophe scenarios that are sometimes conjured up.

What does this mean for the elderly?
The vast majority of retirees in Switzerland can live a dignified life without poverty in old age. The disposable income per retiree is not far below the income during working life.

This certainly applies to today’s retirees. Should future generations be afraid that there will no longer be enough money for their old-age pension?
No, not in my opinion. However, for pension provision in Switzerland to remain affordable, two conditions must be met. We need full employment, which means that as many working-age people as possible are also working and paying pension contributions, so that we can afford to be retired for an average of 20 to 23 years.

What would be the second requirement?
What is important is the willingness to adjust the premiums or the retirement age if necessary. In Switzerland, the population never allowed pension provision to lead to financial imbalances, but always acted promptly when necessary – for example by increasing VAT. In my opinion, there is therefore no threat to the financing of pension provision.

The reform of AHV 21 will come into effect on January 1, 2024. What exactly will change and who will be mainly affected?
The AHV 21 reform standardizes the reference age for receiving pensions for women and men at 65 years and secures the financing of pension provisions with a VAT increase of 0.4 percent. From those born in 1961 onwards, the retirement age for women will increase by three months every year. If you belong to the transition generation, you can receive income-related pension supplements, provided you work until the reference age. It seems important to me that the reform enables people with premium differences or low pensions to improve their pension by working longer.

How do you assess the reform – with a view to the future of pension provision?
This reform is expected to maintain financial balance until approximately 2030. I also consider the possibility of improving your pension by working longer as progress. Now employers have to play along. It must become normal to work up to the reference age.

Young people are often uncertain about their future pension and have little confidence in AHV and pension funds. How do you rate this?
I notice that there is fear mongering when it comes to pension financing. When I was in my early twenties, the financial collapse of retirement savings was predicted for the mid-1990s. No one predicted the economic and population growth.

However, a further increase in contributions is expected in the future…
WHERE. Given the continued increase in life expectancy and as baby boomers retire, reforms will be needed again by the end of the decade. The question should be simple: do we want to pay more or do we want to work longer?

We want to maintain our standard of living, even when we retire. Are people’s expectations regarding their retirement planning too high?
Pension provisions form the core of the welfare state, together with unemployment, health and accident insurance. At some point you stop working and are dependent on a pension income. In this respect, the right to continue to live in dignity, even if one no longer earns an income, is justified. Conversely, you should also know that pension provision is not free.

How much should that cost?
If we retain the right to receive about 60 percent of our income in our old age and want to provide for about 23 years in 45 years, we will have to spend almost a quarter of our income on this, regardless of whether we have a provision meet with capital. financing system or a pay-as-you-go system.

Where do you currently see the biggest challenges in retirement planning?
In addition to financing, there is insufficient protection for low incomes and part-time employees in the second pillar and the way in which pension funds deal with inflation.

What are the possible consequences of inflation?
In the coming years we have to take into account an inflation of 1 to 2 percent. This is not good news for former retirees. There is no obligation for pension funds to adjust existing pensions to inflation. This means that there is a risk of a slow erosion of the purchasing power of pensioners. This is especially a problem with low pensions and for the generation that retired with low conversion rates and without a compensatory increase in pension savings.

Doesn’t the increase in interest rates also generally lead to higher investment income, which could benefit those insured in the second pillar?
After a transition period, yes. That’s the good news. If pension funds show a high level of coverage again in a few years, they will think about how to use the surpluses: for a better interest rate on pension credits, higher conversion rates or compensation for the cost of living for all or some of the pensioners. .

What would a fair solution look like?
Pension funds are communities of solidarity: they must balance working people and retirees, that is to say, find solutions that are suitable for all insured people. For funds with low conversion rates, it is possible that some generations have retired with too low a pension. In my opinion, these should receive preferential treatment when adjusted for inflation. And for people with a job, it is important that pension savings yield an appropriate interest rate, so that pension savings can keep pace with general wage developments.

Where do you see gaps in the pension system?
People with a low income or part-time workers enjoy little protection in the second pillar.

What adjustments are being made to improve the situation?
In my opinion, the AHV is already relatively well adapted to new developments such as more part-time work, more interruptions or the increasing number of divorces. With the introduction of spousal separation, progress was made in improving pension provision, despite career breaks, part-time work and low incomes. The education credits were also a step in the right direction. And divorce law ensures that the pension assets in the pension funds are divided fairly in the event of a divorce.

However, adjustments are still needed in the second pillar…
In the second pillar we have the problem that part-time employees are poorly insured. The reduction in the coordination deduction brings an improvement.

What is that supposed to do?
A lower coordination deduction increases the insured part of the wage. This means that people with part-time insurance and people with low wages are better protected.

Many people today rely on lump sum withdrawals instead of second pillar pensions. Can this be seen as distrust? And will this cause pension funds to get into trouble?
Some pension funds have gone too far in lowering the conversion rate. In response, some people prefer to invest their money individually. However, the risks are great. It is safer to have at least the part of your pension money paid out in the form of pension that you need for your daily life.

Source:Blick