Change

GLOBAL INVESTOR 1.17 —15
What are the main challenges to
the system?
Martin Eichler Apart from the stress on
the financial markets in the short term, the
main challenge at the moment is a convergence
of three different factors. The first
is baby boomers, who are now approaching
retirement. The burden they represent is
temporary (although it will last for about 30
years), but it’s substantial. And it’s particularly
hard for the AHV system, the payas-you-go
part. Initially, the baby boomers
put more money into the system than they
took out, which actually was a double-edged
sword in the sense that it masked other
challenges to the system.
Such as …?
Martin Eichler Despite Switzerland’s
high level of immigration, we are facing a
declining population. At the moment, the
population is still rising, but at a fast dropping
rate. Our birthrate is substantially
below the 2.1 children needed to maintain
the size of the population. Already in the
medium term, all the projections point to a
declining population. It may take 10 or
15 more years, depending on migration, until
we reach the tipping point. But it will certainly
happen. To illustrate the problem:
according to a back-of-the-envelope calculation,
it would take about 100,000 additional
net migrants every year of 20-year-old people
to keep the old-age dependency ratio stable.
That would be politically impossible,
wouldn’t it?
Martin Eichler Yes. It means more than
doubling net migration every year. It’s also
very difficult to attract that many people.
Remember that other countries around us
are also facing declining populations as well.
In any event, it’s not a solution. Migration
can help, but it’s not enough to solve the
problem.
And the third challenge?
Martin Eichler Increasing life expectancy.
Not only are we getting older, we’re
also healthier and stronger. That’s great,
but it puts pressure on the pension system
in that pensions are paid out for longer.
What role does the low-interest-rate
environment play in the challenges to the
pension system?
Martin Eichler It’s difficult, of course,
especially for the capital-based pillar.
But we see that as a temporary effect. It
might well last for another few years;
however, we do expect the situation to
normalize at some point.
Martin Eichler
is chief economist and member of the
board of directors of BAK Basel
Economics AG. He heads up BAK Basel’s
analysis and forecasting, and consults
both within Switzerland and abroad.
He studied Economics at the University
of Constance, Germany, and at the
University of Western Ontario, Canada.
“Particularly for millennials
and other younger
generations, the question
is how long we wait to
react. The longer we wait,
the harder it will hit!”
Martin Eichler
So what is to be done?
Martin Eichler Particularly for millennials
and other younger generations,
the question is how long we wait to react.
The longer we wait, the harder it will hit! We
do need migration to cover some of the
stress in the system, and higher contributions
to social security are inevitable. Furthermore,
I believe that at some point we will have to
increase the pension age in Switzerland. With
a mix of actions the system can be saved
if we – including the citizens, who will have to
vote on it – want to save it.
What impact do you expect the
changing nature of work to have on
the pension system?
Martin Eichler With less stable kinds of
employment, longer periods of education
or self-employment for example, we probably
need more flexibility, especially with
the employer-backed second pillar. We need
to ensure that different parts of a working
life add up to a substantial pension without
too many holes. But that doesn’t require
a completely new system. I’m convinced that
it can be achieved.
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