Further reforms are needed to secure pensions

Who knows what will happen in 2050? You don’t even know what’s going to happen tomorrow or next year. But what applies to people in private life and to companies also applies to politics: Decisions made under uncertainty are unavoidable and require forecasts – the only question is whether you limit yourself to vague gut feelings or disclose the forecasts with the underlying assumptions.

In the energy strategy and climate policy, the Federal Council had no hesitation in justifying the need for reform with reference to scenarios and forecasts up to 2050 or even beyond. In the case of the AHV, however, the government had refused in recent years to make calculations for financial scenarios for more than ten years – allegedly because longer-term calculations are fraught with too much uncertainty.

Everyone makes predictions

Some of the demographic developments can also be estimated to some extent over the long term, but the AHV uncertainties are undoubtedly great – for example with regard to economic growth and immigration. But there is at least as much uncertainty in the dossiers on energy and climate policy. Pension provision is also about long-term developments and essentially the same question as in climate policy: What mortgages do the older generations want to leave behind for the younger generations? A waiver of explicit forecasts or scenarios would in fact also amount to a forecast – which would say something like this: “There is no long-term problem that we have to take care of today.”

Under pressure from the Social Committee of the National Council in the context of dealing with the unions’ pension increase initiative, the Federal Social Insurance Office has now gnashed its teeth benchmarks on the financial perspectives of the AHV up to 2050. The paper first recalls that projections beyond ten years are not very reliable. The figures mentioned are not to be regarded as forecasts, but as “updates” of the income and expenditure of the AHV. The demographic assumptions used are based on the long-term reference scenario of the federal statisticians, and the economic assumptions are based on the long-term scenarios of the federal economists (with annual wage growth of 1.1 percent adjusted for inflation from 2032 in the main scenario).

increase to 10 billion

In principle, it is very likely that without further reforms, the annual financial statements of the AHV will continue to deteriorate over the next twenty to thirty years, because the number of pensioners is likely to rise faster than the number of employed. The key figures of the federal government provide indications of the extent of future financial problems. The AHV apportionment result is shown; this is the balance of income minus expenses before taking into account capital gains. According to the data, the levy result will be negative from 2029. The annual minus is initially less than one billion Swiss francs and then increases rapidly. In 2031 it will already be over two billion, and in 2050 the expected annual minus will be around 10 billion francs (at 2022 prices; see chart).

According to the calculations, the minus estimated for 2050 could be compensated for with an increase in VAT of 2.2 percentage points or an increase in wage contributions of 1.7 percentage points. One obvious alternative is not mentioned: the general increase in the retirement age by at least one to two years.

According to current law, the sum of the deficits by 2050 would be over 130 billion francs. This shows the extent of the need for action even after the popular yes to the “AHV 21” reform. When capital gains are factored in, the picture doesn’t look much better. In its official scenarios up to 2032, the Confederation expects investment income of CHF 1 to 1.5 billion per year up to 2032. With the dwindling of the capital stock, these returns would steadily decrease without further steps. Taking the investment income into account, the AHV would probably be in the red from 2031, and the total deficits by 2050 would still be well over 100 billion francs. At the end of 2021, the AHV reported assets (reserves) of almost CHF 50 billion – which roughly corresponded to the amount of annual expenditure. Left unchecked, reserves could shrink to zero by the 2040s—and then plummet well below zero.

Endless expansion requests

It would be even more expensive if the popular initiatives for further AHV expansion were accepted. According to the federal budget, the unions’ pension increase initiative (“13th AHV pension”) would increase the annual AHV deficit by around CHF 4 billion in 2032 and by almost CHF 6 billion in 2050. The recently launched initiative to abolish the pension ceiling for married couples (two individual pensions instead of a maximum of 150 percent of an individual pension) should initially cost almost 3 billion francs more per year, according to earlier federal information; there will probably be a lot more later. Without an increase in the retirement age, the expansion wishes mentioned would primarily be at the expense of younger people.

Parliament has one this year Motion to the Federal Council, which calls for sustainable and “generation-fair” AHV financing by 2050. Blameless citizens may interpret the term “fair for generations” in such a way that all generations have to bear similar burdens. However, the previous majority in federal Berne had a completely different idea of ​​this term. The motto: The more the younger ones are burdened in favor of the older ones, the better.

In view of the uncertainties mentioned, the figures given up to 2050 should be regarded as a rough indication of a plausible order of magnitude. The numbers will almost certainly turn out to be wrong – but it’s unclear in which direction. Such calculations are particularly useful for political decisions when they are unbiased: when the probability that the figures will turn out to be exaggerated is about the same as the probability that things will get worse.