Avenir Suisse’s suggestions include clear proposals for financing old age care, under which individuals would have to take greater individual responsibility, but would be offered more choice. The ideas are particularly timely given the current debate in Switzerland about individuals’ rights to use assets accumulated under their occupational pension plans (the second «pillar» in the country’s «three pillar» system of state, occupational and private pensions, ed) and about re-organising supplementary pension benefits.
In 2015, Switzerland will for the first time have more people aged 65 than 20. By 2050, the ratio of earners to pensioners will sink from 3.5:1 (2010) to 1.9:1. By then, the number of working aged people, compared with those of 80 or over, will have fallen from 11.6 (2010) to just 4.2 (see chart 1).
In a new publication, Jérôme Cosandey, with Martin Eling, François Höpflinger and Pasqualina Perrig-Chiello, highlights the challenges of an ageing population. Analysing the so called «intergenerational contract», they note that much more is at stake than just pensions finance. The «contract» is a web of obligations and services between four distinct generational groups: children and youngsters; people in work; retirees; and the very old. Among its relevant elements are – for the state – family allowances, educational spending, old age pensions and elderly care. Individuals, meanwhile, must take responsibility for child care, looking after elderly parents and dealing with legacies (see chart 2). Any revision of the «intergenerational contract» needs to pay particular attention to:
- Ensuring the burden on the active generation can be realistically met. People of working age are finding themselves increasingly squeezed between looking after children and caring for elderly parents. Life for the latter could be improved by providing more sheltered accommodation, relieving the burden on their offspring. Rising distances between family members and increasingly irregular working hours pose additional problems for working families. More flexible hours could improve the balance between work and family responsibilities. Innovative schemes to intermingle generations – for instance by inviting the elderly into the classroom – or pilot concepts rewarding those volunteering as carers for the elderly with the right to care themselves later in life – could be additional ways of mobilising resources outside the family. Meanwhile, old age care should use both inpatient and outpatient facilities more efficiently – including re-examining the division of labour between family members and specialist carers, with the former focused on providing help and the latter care.
- Pre-financing elderly care through obligatory saving. Today’s rules for supplementary benefits disadvantage saving for one’s old age care in favour of immediate consumption. Those who have savings when taken into care have to pay out of their own pockets, while those without are covered by the state. Avenir Suisse recommends this distortion should be replaced by an obligatory savings scheme from the age of 55 onwards. Accumulated funds could then be used, as required, for care, whether in a home or as an outpatient, depending on an individual’s preferences and family situation. Unused funds would be inherited on death – encouraging (and rewarding) relatives offering support. Demanding such compulsory insurance from 55 would ease some of the financial burden on younger generations and strike a better balance between the financing and provision of elderly care.
- Ensuring future generations‘ flexibility. It’s appropriate, when analysing the financial burden on tomorrow’s generations, to look at debt not on a per capita basis, but per child. Examined in this way, the figure for Switzerland amounts to about SFr 175,000, with marked differences between cantons ranging from SFr 106,000 in Appenzell Innerhoden to SFr 319,000 in Geneva (see table 1). Debt can be called «generationally equitable» if it finances goods, like infrastructure, that will also benefit future generations. But a significant proportion of Switzerland’s debt – which is set to grow in future – is not earmarked for investment, but for legally binding services whose financing is still unresolved – such as elderly care. Putting the system on a secure financial footing means raising the statutory retirement age, introducing a mandatory «debt brake» on the social security budget and a more flexible formula for determining individuals’ contribution based pensions.
Any centrally ordained dirigiste mechanism designed to meet all the challenges of an ageing population is doomed to fail. Instead, there is a series of separate, step by step, measures that can be introduced. In a direct democracy like Switzerland, this is the most viable approach to allow policy to be adjusted continuously to reflect demographic, social and economic developments.