The demographic transformation is the greatest challenge for pension planning in Switzerland, as it is throughout the whole of Europe. Just under a quarter of Swiss managers believe that the pension plans of their companies meet requirements for 2020. The Pensions Reform 2020 package laid a firm new foundation in Switzerland. However, in order to be able to maintain today’s level of benefits, the cost of pensions will increase. The study, entitled “Is 75 the new 65? Rising to the Challenge of an Ageing Workforce” was carried out by the Economist Intelligence Unit in partnership with Towers Watson.
Just under a third (30%) of the Swiss managers surveyed in the study cited the demographic transformation as the greatest challenge for Pillar 2. As no upward adjustment has yet been made to the retirement age in Switzerland, the accumulated retirement capital must suffice for ever increasing pension durations. Just under a quarter (24%) of Swiss managers consider the pension plans of their companies to be viable for the future, and almost half (46%) believe, by contrast, that adjustments will be necessary over the next few years.
“Pensions Reform 2020, for example, laid a firm foundation for correct conversion rates; a reduction of the conversion rate from 6.8% to 6.0% is planned. However, the rate is still too high in actuarial terms and some companies have already reduced it to 5.4%,” explains Peter Zanella, head of Retirement Solutions at Towers Watson in Zurich. “The redistribution from young to old will be substantially reduced with decreased conversion rates, though it still exists.” The rest of Europe appears to be less aware of the problem: 35% of all respondents are of the opinion that the pension solutions of their companies will still meet requirements in 2020.
Rising Costs
“The Pensions Reform 2020 package aims to maintain the level of benefits, but that is not possible without additional costs,” says Peter Zanella. This opinion is shared by the Swiss managers surveyed in the study: more than half (54%) anticipate that the costs of pension plans will rise, and only 8% consider falling costs to be plausible. “The study demonstrates that cost control will continue to play an important role for companies. They should therefore minimise the risk inherent in their pension plans by means of appropriate measures,” says Zanella. In addition, a third (32%) of Swiss companies lack the tools to measure the viability of pension plans.
PIllar 2 as an instrument for staff loyalty
Nowadays Swiss companies see their pension plans as a means of ensuring adequate retirement pensions for their employees (32%) and being able to recruit talented specialist and management staff (30%). By 2020 the importance of these objectives will fall and staff loyalty (33%) will become the primary aim. “It is conceivable that in future there will be a two-way split, in which the most highly-qualified talented staff receive very good pension packages and the remaining employees are less well taken care of,” says Zanella. However, recently qualified specialist and management staff with more generous pension benefits increasingly have a higher life expectancy than average, so this trend is similarly leading to rising company costs.
LIttle freedom of choice for uninsured employees
An important trend in the pensions landscape is the improving flexibility of pension plans, meaning that insured persons can choose their employee contributions from various options. Half (49%) of all companies in Europe want to give their employees more freedom of choice by 2020. The Swiss are more conservative: less than a third (30%) plan individual tailoring of contributions.
The Swiss and the rest of Europe are also divided on who is responsible for pensions. Sixty-one per cent of Swiss managers consider it to be the responsibility of companies, 25 per cent that of the individual, and 14 per cent the state; by contrast, in the rest of Europe the state (26%) and the individual (32%) bear more of the responsibility. “This result demonstrates the belief in a liberal system with heavy involvement of the company, thus faith in the Swiss three pillar principle,” Peter Zanella enthuses.
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