Swiss workers face a better retirement outlook thanks to a successful trade-union initiative.
Swiss voters enjoy extensive direct democratic rights. For example, they have the right to organise initiatives against new federal laws and launch popular initiatives—provided they have collected the requisite number of eligible voter signatures—to propose amendments or additions to the federal constitution. Legislative referenda frequently succeed at the ballot box; popular initiatives though rarely do.
On March 3rd, the Swiss electorate accepted an initiative put forward by the Swiss trade unions to increase the state pension—the 13thold-age and survivors’ insurance (OASI) pension payment. It was a historic moment for several reasons, not least because it was the first time a union initiative had enjoyed victory at the polls. The outcome was even more impressive, given the overwhelmingly negative media coverage of the campaign and strong opposition from the federal government, Switzerland’s centre and right parties (which enjoy 70 per cent of the national vote), trade associations and the banking and insurance industry.
The win is a milestone for Swiss social policy as well. Not only is it the first state pension rise in decades but a separate initiative from one of the conservative parties, proposing a gradual increase in the current retirement age of 65, was resoundingly rejected by 75 per cent of voters.
Pension misery
Surveys conducted after the vote found that the lower a voter’s income, the stronger their support for the initiative. The fact that low- and middle-income voters overwhelmingly backed the trade unions’ proposal disproves the widespread media narrative that the divide in voting behaviour was along generational lines. The determining factor was, in fact, class: the initiative passed primarily because of the growing pension misery faced by many in the low- and middle-income brackets.
The Swiss pension system combines a pay-as-you-go state insurance scheme (the OASI), the primary source of pension income for most retirees, and a capitalisation-based occupational scheme. Unlike the state pension, occupational pensions are not regularly adjusted in line with inflation. Low interest rates have compounded the issue: occupational pensions are worth up to 20 per cent less in real terms than 15 years ago. Few comprehend why old-age pensions are shrinking despite rising economic output and national income.
In recent decades, a 13th monthly salary payment has become the norm in Switzerland. It therefore made perfect sense to frame the proposed increase as a 13th pension payment. The initiators also concluded that a rise in the state pension was the most cost-effective way to improve the economic wellbeing of retirees.
Greatest achievement
The OASI scheme, estabished in 1948, was the greatest achievement of the Swiss labour movement in the 20th century. It has been the bedrock of the Swiss welfare state ever since and its benefits and funding model have stood the test of time.
The scheme is financed by employee and employer contributions, supplemented by a 20 per cent federal input from tax revenue. Funding is rock-solid because contributions must be paid on all earnings, no matter how low or high. Higher contributions, however, give rise to larger pensions only up to an earnings ceiling.
The scheme has a strongly redistributive effect, thanks to the unreserved obligation to pay contributions coupled with the cap on the benefits paid out—the maximum state pension is the same for very high earners as for those in the middle-income bracket. Another distinguishing feature is the uniquely broad contribution base: OASI contributions are paid on all sources of earnings, which ensures that the scheme has the funds to bear the costs of growing pension entitlement resulting from rising life expectancy. In other words, economic growth helps to cover the increased funding requirement stemming from demographic ageing.
A further strength of the scheme is its implied equality. Although the final pension a person receives is determined by their earnings, OASI pensions do not discriminate on gender. This contrasts with Switzerland’s other social-insurance schemes, which provide benefits primarily based on the income earned from gainful employment. The average state pension for women is equal to the average state pension for men, because the OASI calculation takes into account education and care credits as well as certain types of unpaid work.
Mounting pressure
Pension systems in many countries have come under mounting pressure over the last few decades. A common argument—one heard in Switzerland too—is that entitlement cuts are the answer to the financial burden engendered by rising life expectancy.
Of course, the fact that people are living longer means they also draw a pension for longer. Yet average life expectancy is also a corollary of economic and social progress and the accessibility and efficiency of a country’s healthcare system. Class is a further determinant, because life expectancy tends to be lower among workers in physically demanding, poorly paid jobs. But it is precisely these people who rely on a good public pension for their wellbeing in old age.
The task of a pension system is to provide social protection in old age for the majority of people on low and middle incomes. Its efficiency is measured by how well its funding increases in tandem with general economic growth. Switzerland’s OASI scheme has the advantages of a broad-based insurance system while generating redistributive effects thanks to its built-in social-protection function.
Sending a message
Since the 1990s, the Swiss welfare state has come under increasing pressure and attacks on the OASI scheme have intensified. The trade unions’ successful state-pension initiative could mark the beginning of a new, more socially just era.
The vote also sends a message further afield, because it shows that even a traditionally conservative country such as Switzerland can weather strong political headwinds to push through a proposal to raise the state pension. Widespread approval of the 13th OASI pension payment opens up a new way forward for pay-as-you-go redistributive pension systems, underpinning solidarity and social cohesion.
Paul Rechsteiner is a former president of the Swiss Trade Union Confederation and a former member of the Swiss Council of States (the upper chamber of parliament).
Gabriela Medici is deputy first secretary of the Swiss Trade Union Confederation.