In mid-May, Jérôme Cosandey took on a new role as Head of the Labor Directorate and member of the Executive Committee at the State Secretariat for Economic Affairs (SECO). The Neuchâtel native therefore ends his long-standing commitment as Head of Social Policy Research at the think tank Avenir Suisse — a fitting moment to reflect on the state of private and occupational pension provision in Switzerland.
Finanz und Wirtschaft: Mr. Cosandey, after fourteen years of research in the field of social policy – how stable and up-to-date is Switzerland’s three-pillar system today?
Jérôme Cosandey: Its resilience is impressive. The system has remained stable despite the financial crisis, the euro crisis, the Covid pandemic, and most recently, the war in Ukraine. Even amid these upheavals, pensions continue to be paid out every month. The three pillars distribute risks and that’s a major strength. The OASI, which operates on a pay-as-you-go basis, is dependent on the Swiss economy, specifically wage levels and tax revenues. But the investments in the second and third pillars are diversified across international capital markets. Relying on just one pillar would be a mistake.
Is the purpose of old-age provision fulfilled?
The primary goal is to prevent old-age poverty. Unlike in 1948, when the OASI was introduced, this is now achieved for the vast majority of the population. Secondly, the system aims to secure replacement income. In the OASI, the minimum pension has increased by roughly 40% in real terms since 1980. In the second pillar, benefits have remained stable when lump-sum withdrawals are taken into account — despite the fact that we are drawing pensions for longer. And more than half of all new retirees have a third pillar, which shows that it is not merely a tax-optimization tool for the wealthy.
How could the system still be improved or made more flexible?
The most recent OASI reform introduced more flexible options for insured people. People can now draw a partial pension or retire earlier or later with greater ease. This flexibility already existed in the second pillar. In this area, we advocate for giving insured individuals more say in choosing their investment strategy or pension fund. But the pension institutions themselves have also become more flexible. Nine out of ten funds have done their homework. On the one hand, they’ve improved coverage for part-time employees. On the other, they’ve adjusted the conversion rate to reduce the systemically problematic cross-subsidization from the young to the old.
The most recent reform of occupational pensions (BVG) was voted down in 2024. Would you not call that a major setback?
Well, there are still about 15% of employees who are insured in a BVG pension fund without an extra-mandatory (überobligatorischer) component. This is problematic because these funds must guarantee statutory benefits calculated using parameters that are out of touch with reality. However, their number is declining, as fewer and fewer employers can afford to offer only a basic BVG solution, especially given the current skills shortage. I expect that in a few years, 95% of pension funds will also insure an extra-mandatory portion. At that point, the question will be how costly any reform can still be. For this reason, not much political movement is expected in the coming years.
However, the federal financial relief package includes a proposal to reduce the tax advantages of pension benefits in the second pillar.
When deciding between taking a pension or a lump sum, tax considerations should not play a role. If the rules are changed now, transition arrangements will be necessary. The problem is that the federal government already needs additional revenue by 2027.
The greatest need for adjustment lies with the OASI. By summer, Federal Councillor Elisabeth Baume-Schneider, who is in charge of this matter, plans to present a comprehensive reform package to stabilize the first pillar until 2040—“without any taboos.” What elements should the “OASI 2030” project include?
Raising retirement age should be part of the solution. It preserves intergenerational fairness and has a double effect: people contribute for a longer period and receive benefits for a shorter time compared to keeping the retirement age at 65. For example, we could spend half of the additional life expectancy we gain in retirement and work the other half longer.
But what about physically demanding jobs?
One option could be to take the number of contribution years into account, allowing those who enter the workforce early and often undertaking physically demanding jobs to retire earlier. However, focusing solely on physical strain has its pitfalls. Today, one in two new disability pension is due to mental health issues.
An increase in the retirement age was clearly rejected a year and a half ago. Does it still stand a chance?
The exact reasons for its rejection are hard to pinpoint. Scandinavian countries like Sweden and Denmark, known for their extensive welfare systems, have raised the retirement age. Yet, in these countries, each generation enjoys a longer retirement on average than the previous one. Raising the retirement age would be only one part of the measures needed to secure the OASI in the long term. Additional revenue is required—either through value-added tax or payroll contributions, although the latter makes labor more expensive. A third element would be aligning survivor’s benefits for widows with those for widowers, in accordance with the ruling of the European Court of Human Rights in Strasbourg.
Are these three measures really enough to secure the OASI until 2040?
The current proposal to adjust survivor’s benefits for widows would save around CHF 350 million per year. Raising retirement age by one year would generate about CHF 3 billion. A fair and affordable solution for the transition generation is needed here. In addition, the mentioned additional revenues are necessary. Without this combination of measures, the numbers simply don’t add up.
And what about the often suggested financial transaction tax?
A tax should provide stable revenue. In this case, however, revenues would decline due to avoidance strategies, meaning the tax rate would need to be continually increased to maintain the same level. This creates a vicious cycle.
A pension-specific inheritance tax?
That’s not a good idea. It would further increase the share of earmarked revenues in the federal budget, thereby reducing the parliament’s budgetary authority. An important role of politics is to reset priorities at the end of each year.
Shouldn’t people also be more motivated to work longer?
The biggest lever to encourage people to work longer lies with employers. Surveys show this requires appreciation, meaningful work, and part-time options. So far, companies do little to tap into the potential of older employees. Yet, a 66-year-old earning the median wage is about 8% cheaper for the employer than a 55-year-old. For employees, incentives already exist: from age 65, OASI contributions are only required on monthly earnings above CHF 1,400. Occupational pension contributions are voluntary, and unemployment insurance deductions no longer apply.
Doesn’t the pension system need more math and less ideology?
In occupational pensions, 1,300 funds operate with different profiles. The strength of this decentralized system lies in its ability to offer tailored, social-partnership-based solutions that reflect the financial realities of individual companies. Pension funds cannot live beyond their means — any underfunding immediately triggers supervisory intervention. At the end of 2024, the average coverage ratio was around 120%. Thus, even though life expectancy is increasing, there are still fluctuation reserves.
But not in the OASI.
In the case of the OASI, the bill has yet to be paid. The problem isn’t just the 13th OASI pension payment — the first twelve also need to be financed. Sometimes the debates feel like a family dinner at a restaurant where everyone argues over who should pay for the espresso, while forgetting that someone also has to cover the starter, the main course, and the dessert.
What’s your view on introducing a debt brake for the OASI?
The law does provide a mechanism in the event of an underfunded OASI fund, but it’s vaguely worded. The requirement could be made more precise. For example, if the fund falls below a certain threshold, policymakers would have a set period to respond. If they fail to act within that timeframe, adjustments would be triggered automatically—such as raising the retirement age or increasing payroll contributions.
Isn’t it the case by now that pensions from the first and second pillars often no longer cover even 60% of the last earned salary?
We spent months trying to estimate the replacement rate. It already starts with the question: what counts as the last income? What if someone only worked 60% during their final four years? According to a model calculation by Swisscanto, the replacement rate has remained relatively stable at around 70% for the past six years. So, in theory, the requirements of the Federal Constitution are being met. However, in reality if there are interruptions in one’s working life, capital is lacking.
Should voluntary private pension savings—the third pillar—therefore be further promoted?
With the implementation of the Ettlin motion, it is now possible to make retroactive contributions to fill gaps in years when full payments were not made. It would have been even better to allow for catching up on years without income, for example during parental leave. I wouldn’t increase the maximum contribution amount, as only a few would benefit from that.
Are the three pillars enough for a worry-free life in old age?
In the past, on farms in the Bern region, there was the “Stöckli” — a small secondary house where grandparents would retire. Back then, retirement provision was viewed holistically, and elderly care was part of the “generational contract.” Since then, we’ve moved away from this lifelong approach to old-age care. The diversification effect mentioned earlier should also be applied to financing long-term care, using a capital-funded system like in the second and third pillars. Everyone would pay monthly contributions into a blocked account, which would be tapped when home care services or nursing homes are needed. On the other hand, these contributions could be tax-deductible.
Wouldn’t that then lead to accusations of creating a two-tier healthcare system?
Those who can pay should do so. Those who cannot would be exempt from the contribution requirement. Then, subsidiarily, solidarity through the general public would come into play, similar to the supplementary benefits in the OASI. Everyone should be enabled to live their old age with dignity.
This interview was published in German on April 25, 2025 and led by Arno Schmocker for the magazine Finanz und Wirtschaft.
