«We can’t get away from thinking about our retirement age»

Since he entered politics, UDC Guy Parmelin has always been interested in the issue of social insurance. Before his election to the Federal Council on 9 December, he chaired the Commission on Social Security and Public Health (CSSS) of the National Council for two years. In late November, he met with us at his home in Bursins to go over the latest developments of the proposed reform of the old-age and survivors insurance and occupational pensions.

 

Can you remember the main points of the proposed reform "old age pensions 2020?

For old age and survivors' insurance, the main idea of ​​the reform is to set the age of retirement at 65 for everyone, while introducing some flexibility: it will be possible to leave earlier by paying its full cost, without favourable treatment. A phased-in VAT increase by one and a half points is planned to finance the entire project. From the standpoint of occupational benefits specialists, the main measure is the reduction of the conversion rate from 6.8% to 6%, while also seeking to find compensation for the so-called transitional age bracket. The issue of widow annuities and the measures relating to freelancers were removed from the bill after its consideration as potential sources of conflict in a popular vote by the Council of States.

Biography

After a formative education majoring in Latin and English and a degree from the Marcelin School of Agriculture, Guy Parmelin began his career as a master farmer, winemaker, and agricultural producer with his brother, over a​​ 36-hectare area in his native village of Bursins (Vaud). A Member of the Democratic Union of the Centre, he entered politics in 1993. A Member of the Grand Council of Vaud from 1994 to 2003, he was elected to the National Council in 2003, where he notably served as a member of the Commission of Social Security and Public Health, which he chaired from 2013-2015. After his election to the Federal Council on 9 December, he took office on 1 January 2016 as Head of the Federal Department of Defence, Population Protection, and Sports.

Why should the old age pension system be reformed?

Switzerland will have 600,000 new retirees by 2025.  If we don’t do anything now, the old age and survivors' insurance compensation fund will fall very quickly and create a several billion franc hole.  Regarding the second pillar, demographic change plays a role, but the problems in financial markets also factor in, with low and even negative interest rates, as introduced by the Swiss National Bank.

What outlook does the current proposed reform bill have for regulating the problems of old age insurance?

After moving to the Council of States, the bill is balanced until 2030, which means that if it comes into force in 2019, we can start immediately. Because, on average, it takes ten years to implement old age pension insurance reforms. Preparing the next phase will be one of the priority issues in the new legislature. But, assuming that the 2020 reform fails, we should quickly look at a mechanism to provide for a gradual increase in the retirement age, to keep us from digging that hole and emptying the old age pension insurance compensation fund. It is a measure that we also owe to future generations who would be the first ones to be negatively affected.

Could Switzerland take inspiration from solutions adopted in Germany or in Scandinavia for old age pensions?

Germany increased its VAT in a single act, which is not possible in Switzerland, legislatively speaking.  Germany also decided to gradually increase the retirement age to 67 over a period of 28 years.  This is an idea that can be prevented or delayed under the 2020 reform.  But we cannot escape a discussion on this topic when we look at costs needed to fund a retirement system worthy of this name.  Especially as the life expectancy beyond 65 has now reached an average of 22 years.  Among the solutions available, we can contribute more to the part of the pie that has increased.  But in this case, purchasing power decreases and expenses for companies increase, with some impact on competitiveness.  Or we can spread the annuities over a longer period and the slices become smaller.  I think the gradual rise in the retirement age, month by month, in terms of the state of the compensation fund, is a measure that deserves to be studied.

Overview

3

The number of pillars the old-age, survivors and disability system rests on in Switzerland. The first pillar is the old age and survivors' insurance intended to cover vital retirement needs and disability insurance. The pension plans (or 2nd pillar) complete the old age and survivors' insurance/disability insurance. The third pillar is the individual pension based on voluntary savings made by policyholders.

Conversion rates

This rate determines the processing of old-age capital savings into a retirement pension. Under the current reform, a retirement capital of 100,000 francs would be converted into an annuity of 6,000 francs, against 6,800 francs today.

22

The average life expectancy of the Swiss population after 65 years, in years, or 84 years for men and 88 years for women, according to the Federal Statistical Office.

The Council of States approved the project, including the increase in retirement age for women. What will happen in the National Council ?

It is expected that the reform will be discussed by the National Council during the autumn session in September.  This is a very ambitious goal, I must admit, even if we are given the means to carry it out.  With Ignazio Cassis, my successor as chairman of the Commission for Social Security and Public Health, we added more than fifty additional hours of work to the Commission. 

 

Why do you want to go so fast?

The current draft reform plans to reassign 0.3 points of the VAT to the old age pension insurance, which is now attributed to the restructuring of disability insurance.  But to immediately benefit from this VAT percentage, the reform must enter into force in January 2018.  Taking into account the final vote and the referendum period, it is necessary for the two Houses to have resolved all their differences by June 2017.  Otherwise the VAT rate will decrease for one to two years before rising again. The problem is that every VAT change costs between 300 and 400 million francs for companies to update their computer systems and their accounts.

 

Will both Houses be able to agree so easily?

I think there should not be any changes to "65 for everyone", especially in light of Parliament’s new configuration.  The flexibility measures should also follow, perhaps with some slight alterations. The main conflict point will be these new annuities, the link between the 1st and 2nd pillars, with which the PLR and my party disagree.
There is also the issue of the VAT: why, how much, when?  For the 2nd pillar, the reduction of the conversion rate should obtain a majority.  Then it will be necessary to agree on compensation measures.  Will you be able to compensate all of it?  There is this whole issue of retirement bonuses (ed. note: The current project involves an increase in new old age pension insurance by 70 francs per month and a monthly bonus of 226 francs for the couples annuities), which again burdens the younger generations. I have no problem starting the process of saving at age 21 instead of 25, but these are measures that will deploy their effects over a very long term.   

 

In the case of a relatively complex project, what are the chances it will win in a vote?

In order for a reform submitted to a vote to be successful, we need to make arguments to show that it is both essential and balanced. I think the Swiss are willing to accept the project, if they see that it incorporates a certain balance of sacrifices. I remain reasonably optimistic about the fact that the Houses can find a project that is not impossibly difficult for the economy to bear as well. 
We must not forget that to pay annuities, we must first take care of wages and economic growth.

 

 
Guy Parmelin
Federal Councillor, Head of the the Federal Department of Defence, Civil Protection and Sport (DDPS)
Article published in march 2016