Switzerland Urged to Reform Pensions

Fiscally-sound Switzerland urged to follow poorer neighbours into pension reform.

(March 26, 2012)  —  The International Monetary Fund (IMF) has urged Switzerland to reform its pensions system to ensure its ageing population is adequately catered for in the near-future.

The tiny European nation must tackle its ageing population – an issue that other countries across the continent have been forced to address – and align its systems to cope with a larger number of retired people in the short term, the IMF reported in its latest study on Switzerland.

The report said: “Measures to tackle the financial consequences of population aging should gain center stage and include additional ‘fiscal rules’.”

The IMF said that if policies were not changed, ‘the increase in aging-related expenditure will already start to bite in earnest around the end of this decade. Consequently, time for reform preparation and implementation is running out quickly’.

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The report comes after many European nations in a less fiscally stable position than Switzerland have been forced to address rising pensions costs.

Even before Italy was caught up in the whirl of the sovereign debt crisis last summer, it had already begun to implement changes to make its pension system more affordable and sustainable. France has experienced wide-scale strikes over attempted increases to raise the retirement age in recent years and the United Kingdom’s Chancellor last week announced that the government would look at linking a raise in its retirement age with improving longevity.

The IMF’s report on Switzerland said this last point was the most important for the country to consider and it should look at nations where this had already successfully taken place.

“Such a rule would reduce the need for repeated and often difficult reform discussions,” the report said.

Equalisation of the male and female retirement age and pension indexation to inflation only (rather than both inflation and wages) could be considered, the IMF stated.

Switzerland has been mostly isolated from the most recent financial crisis and its currency has seen massive appreciation against the euro and dollar as a result. The Government has taken measures to ensure the Swiss franc does not move totally out of kilter with other base currencies. The IMF said this was appropriate, but not endlessly sustainable.

It said: “Once economic conditions normalize, a return to a freely floating currency would be desirable. While the exchange rate floor has been successful, once an economic recovery gets under way and deflation risks recede the SNB should move back to a free float.”

Last month, aiCIO revealed that Ireland had asked the Organisation for Economic Co-operation and Development (OECD) to review its pensions system.  The government said it wanted to take a fresh view of the country’s pension sector in light of changing economic and demographic circumstances.

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