Adequacy of pension provisions in Switzerland

Abstract

There exists an apparent contradiction: on the one side, Switzerlands three pillars pension system is presented as an exemplary model worldwide. In 1994 the World Bank in a well known report Averting the Old Age Crisis endorsed the three pillars pension system, mentioning the Netherlands, Switzerland as successful examples. With a 15.8% poverty rate among old age in 2012, the Confederation (Swiss government) finds its pensions system effective and doesnt include them in the priority group (i.e. single-parent households) of its averting poverty policy. On the other side, in international comparison, in 2010 Switzerland was lagging behind with 21.8% of old age poverty (poverty line fixed at 50% of median income), far above the OECD average of 12.8%. For the EU, Switzerland was in 2013 also significantly above the EU-28 average of 18.3%, with a national level of 29.6% (60% of median income). Switzerland is one of several pioneering countries in the world to have developed and implemented a multi pillars pension system. Namely, it has opted for a three pillars system, consisting of a state pension system (first pillar), an occupational pension provision (second pillar), and a private pension (third pillar). This concept of three pillars system was enshrined in 1972 in the federal Constitution after a popular vote, and its aim was to maintain an appropriate level of living for retire insured people, or in case of disability or death of insured people. Among Swiss researchers, no unanimity can be found regarding old age poverty, rather a variety of figures prevails, ranging from as low as 3% to 16%, which leads logically to different policy positions. A previous study by Wanner & Gabadinho on the economic situation of the Swiss population found that in 2008 retired pensioners were financially secure, with only 6.6% of them living in poverty, and didnt include old age people in the priority group of poverty averting policy. Which position is reflected by the Swiss government old age policy. Even though there is no debate about the overall success of the Swiss three pillars model, the higher level of old age poverty (in international comparison) brings to question the adequacy of the Swiss model. An exploratory study was carried on the Swiss Households Panel (SHP) data to determine the effectiveness of the pension system in reducing old age poverty, and to measure the contribution of each pillar to the pension system. The SHP is a longitudinal database on Swiss population panel, created in 1999 it counted 10,575 individuals living in 4,467 households in 2013. A sub-sample was defined by selecting old people aged over 64 for women and 65 for men. A quantitative analysis was done through descriptive statistics, simple graphics analysis and linear regression. Main findings of the research exposed a poverty level of 28.4% at 50% median income and a level of 8.3% at the absolute poverty threshold defined by the Swiss Federal Statistical Office. The first pillar contributed for 62% to the income of old people, while the rate of the second pillar was of 26%. Possible policy recommendations could be to expand the quasi universal first pillar, in order to better protect the population with low second pillar or no second pillar at all. Low wage, part time workers and women would be primarily concerned.