The Swiss multi-pillar pension system : triumph of common sense?

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The Swiss multi-pillar pension system : triumph of common sense?, Volume 1

Author:	Queisser, Monika; Vittas, Dimitri;	Collection Title:	Policy, Research working paper ; no. WPS 2416
Country:	Switzerland;	Date Stored:	2000/10/07
Document Date:	2000/08/31	Document Type:	Policy Research Working Paper
Language:	English	Major Sector:	(Historic)Social Protection
Region:	Europe and Central Asia	Report Number:	WPS2416
Sub Sectors:	Pensions & Social Insurance	SubTopics:	Environmental Economics & Policies; International Terrorism & Counterterrorism; Non Bank Financial Institutions; Payment Systems & Infrastructure; Economic Theory & Research; Banks & Banking Reform; Public Health Promotion; Pensions & Retirement Systems
Volume No:	1

Summary: The authors provide a detailed study of the Swiss pension system, analyzing its strengths and weaknesses. The unfunded public pillar is highly redistributive. It has near universal coverage, a low dispersion of benefits (the maximum public pension is twice the minimum), and no ceiling on contributions. Low-income pensioners receive means-tested supplementary benefits. Payroll taxes are low, but government transfers cover 27 percent of total benefits. Total benefits amount to 9.1 percent of GDP, equivalent to 15.2 percent of covered earnings. The funded private pillar was made compulsory in a defensive move against the relentless expansion of the public pillar. The compulsory pillar stipulates minimum benefits in the form of age-related credits, a minimum interest rate on accumulated credits, and a minimum annuity conversion factor, aimed to smooth changes in interest rates over time. Low-income workers are not required to participate in the second pillar. The first and second pillars as well as supplementary benefits are admirably integrated. Company pension plans are free to set terms and conditions in excess of these minimums, and most offer benefits exceeding obligatory levels. The second pillar has accumulated large financial resources, equivalent to 125 percent of GDP. Investment returns have historically been low, but a shift in asset allocation in favor of equities and international assets has increased reported returns in recent years. The third (voluntary) pillar covers self-employed workers and others not covered by the second pillar. It plays a rather small role in the system. Many of the positive features of the Swiss pension system are not due to some grand original design but are instead the result of periodic revisions. In large part they reflect the collective common sense of the Swiss people in voting for stable and fiscally prudent social benefits. However, the Swiss system also has some weaknesses. As in many other countries, the public pillar faces a deteriorating system dependency ratio, due to demographic aging and a large increase in disability pensions. The second pillar is fragmented (more than 4000 funds with affiliates), lacks transparency, and has achieved low investment returns.


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File Type		Description	File Size (mb)

	PDF 92 pages	Official version*	6.44 (approx.)
	Text	Text version**


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File Type		Description	File Size (mb)

	PDF 91 pages	WPS2416	0.18

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