Learning from the Swiss

Following the Pension 2020 rejection, Swiss citizens are still grappling with pension reform—as well as a resulting tax reduction.

Had the September overhaul been accepted, Pension 2020 would have revamped the first two sections of Switzerland’s three-pillar pension system, equalizing the retirement age to 65, while raising both single and married taxes.

To better fund the scheme and introduce more retirement flexibility between ages 62 and 70, social security and value-added tax (VAT) rates were to increase in 2018 by 0.3%. In 2021, VAT rates would have risen again.

VATs will instead decrease January 1, giving taxpayers and companies an increasingly short window to adapt their systems, pricing, and agreements to the new rates, codes, and invoice templates. Standard and special rates will drop to 7.7% and 3.7%, respectively. The “reduced rate” will remain at 2.5%.

While Parliament and the States Council voted in favor at 101-92 and 27-18, respectively, the people ultimately decided against the controversial reform in a 52.7%-47.3% vote.

Although the scheme has seen 15 referendums since 1931, the population has only voted in favor of two: one in 1947, the other in 1978.

“For more than 20 years, no result has passed, and the reform is really urgent, especially for the first pillar,” Andre Tapernoux, Wealth Leader Switzerland, Mercer, told CIO.

According to the Swiss government, life expectancy increases, low interest rates, and the impending retirement of the baby boomer generation were the reform’s key drivers.

Although Pension 2020 was rejected, Tapernoux suggested its naysayers did not necessarily dismiss reductions, but more so denounced increases and second-pillar compensation measures. Tapernoux expects a new first and partial second-pillar reform around 2022, where approval would allow at least a decade of first-pillar expenses, providing enough time to find a more sustainable solution.

To prevent a possible insolvency, Switzerland again will need to modify its proposals to better accommodate citizens.

Peter Zanella, director of retirement service, Willis Towers Watson (Zurich), told CIO the nation must address “urgent issues,” including decreasing the second-pillar conversion rate with “reasonable compensation methods” without grandfathering in pricey and complex regulations. In addition to an equal and flexible retirement age, and an adjustment and funding increase, Zanella said Switzerland should avoid any “unnecessary further regulations that only lead to higher cost without benefit for the insureds.”

Switzerland’s Federal Department of Home Affairs could not be reached for comment. —Chris Butera