You often hear that the pension system cannot be relied upon: given demographic trends, currency devaluation, and an ever-expanding state, one should not count on pensions being paid out at all.
In the case of the Swiss pension system, however, I argue that the system is not in danger of collapsing, even if benefits will be lower for certain groups.
In the next (and final) part I try to sketch a "field of forces", in which we complement the financial perspective with political and legal ones. That makes it clearer in which direction the Swiss pension system is moving - in my view towards the evaporation of the extra-mandatory portion and the merging of AHV and the mandatory portion.
In a "bank run" on a bank, depositors withdraw their funds when they fear the bank lacks sufficient substance. This worsens the bank's position further, which in turn spurs other depositors to withdraw their money.
What would a "bank run" on the pension system look like? People would try to take their money out of the system. How would that be possible? The following, among others, is conceivable:
The fact that you can withdraw capital from the pension system actually makes it attractive: an additional incentive to pay into the system. In a run, when many people do it at the same time, this does however become a problem. How can the state counteract it? With taxes (pun intended), which are already levied today, varying by canton, but generally much lower than income tax. It would then suffice to set the withdrawal tax equal to income tax, and to align the rates across cantons, in order to seal the "leak".
Furthermore, the rules can be tightened:
So the state already has sufficient means today to prevent such a run.
However, it does not have to come to a run to destabilize the system. The system can also let its substance "leak" away gradually over a longer period, until it eventually stands at the edge of a cliff.
If the system leaks long enough, a run also becomes more likely.
What actually is a "leak"? It is in fact part of the system design that the money gets paid back at some point. One can only speak of a "leak" when structurally more is paid out than paid in.
This is not easy to determine definitively, it also depends on the assumptions. But what generally leads to a leak:
The current minimum conversion rate of 6.8% was decided (*) at a time (2003-2005) when life expectancy was about 3 years lower than today. The original conversion rate in 1985 was 7.2%, with a life expectancy that was 4-5 years shorter than in 2003. In 2024, voters rejected at the ballot box a proposal to lower the rate to 6%.
The relevant figures over the last 40 years as a table:
| Year | Life expectancy (M/F) | Remaining life exp. (M/F) | Retirement age (M/F) | Conversion rate | Interest |
|---|---|---|---|---|---|
| 1985 | 76.9 (73.5/80.2) | 16.5 (14.5/18.5) | 65 / 62 | 7.2% | 4% |
| 2005 | 81.3 (78.7/83.9) | 20 (18.1/21.8) | 65 / 65 | 7.1% | 1% |
| 2025 | 84.5 (82.7/86) | 22.1 (20.6/23.5) | 65 / 64.5 | 6.8% | 0% |
(*) The 2003 decision was to gradually reduce the rate from 7.2% to 6.8% over 20 years (2005-2025).
From a systems perspective, the conversion rate was already reduced too little back in 2003. Technically "too little" does not, however, mean "too little" from a social and political point of view: there it may well mean "too much". The fact that interest rates in recent years have been near zero additionally exacerbates the problem (the system cannot be stabilized with extra returns).
One can see that political resistance is too great to defuse the situation, so how does the system remain stable? By paying out less from Pillar 2b ("extra-mandatory"). Theoretically, one could set the minimum conversion rate for the extra-mandatory portion to 1% (if not to 0%...).
This means there is essentially redistribution between sub-pillars 2a and 2b.
While the contradiction can also be resolved within the current framework, in the long term it can nevertheless become a problem. Here are some additional payments into and out of the system that are built in:
In the long term, more and more employees are forgoing voluntary purchases (or keeping them smaller than before), paying only the minimum share into Pillar 2, and reducing their workload (going from 100% to 80% is relatively easy). So currently the "sub-pillar 2b" is losing attractiveness.
At the same time, one should not lose sight of the rest of Europe. Even though the Swiss pension system has certain problems, they are even more serious in the rest of Western Europe. The relatively better position strengthens the overall attractiveness of the Swiss system.
What are the possible options to defuse the problem? Raising the retirement age and lowering the minimum conversion rate meets political resistance that is nearly impossible to overcome in the current political landscape. At the same time, proposals keep being added that throw the system further out of balance: for couples, for women, etc. This may be fair and desirable, but from a systems perspective it has to be balanced out: through taxes/levies, currency devaluation, redistribution, etc. A purely technical view would be absolutely wrong here, otherwise one might come up with the idea of shortening life expectancy, which from a purely technical standpoint would bring the system back into balance.
The easiest way out is naturally qualitative growth (i.e., through productivity gains).
At the same time, however, new challenges arise. The pension system was designed around lifelong employment, and assumed a different family structure and a different role for women. Due to many factors, it is harder today to find work after 50, while current labor law additionally diminishes the attractiveness of this age category: you have to pay much higher contributions than for younger employees, and termination protection is stronger. This is social and fair, and worked well in a world of lifelong employment, but no longer today.
Technological and geopolitical challenges complete the overall picture. If AI takes over more and more work while pension contributions continue to come from employment income, who is supposed to pay for future pensions? With the current system and a continuation of the trends, for example 80% of retirees would end up in Pillar 1, which would then be cross-financed (e.g., from value-added tax, like the newly approved 13th AHV payment).
The Swiss pension is secure, albeit on a smaller scale, and above all for lower incomes. Conversely, the extra-mandatory portion is coming under increasing pressure.
Put crudely and pointedly: the mandatory portion is secure, the extra-mandatory one is not.