26 February 2014. With “Altersvorsorge 2020” (“Old-age Provision 2020”) and “Gesundheit 2020” (“Health 2020”), Federal Councilor Alain Berset has floated two large-scale, social-policy projects at once. The Federal Council wants to announce plans for reforming the old-age provision by the end of 2014. This clearly is a difficult political process whose outcome is still very open.

Passage of the immigration initiative intensified the need for reform because the development of migration is one of the key input parameters for AHV finances. It is generally accepted that AHV has recently turned out much better than projected a few years ago. Migration of high-income employees and Switzerland’s strong economic development are significantly responsible for this.

However, with the acceptance of the immigration initiative, experts now expect the trend to reverse. The influence of reduced immigration can be estimated on the basis of existing projections by the Bundesamt für Sozialversicherung, or BSV (Federal Agency for Social Insurance). According to those, AHV’s additional deficit, stemming from a change from BSV’s middle scenario to its low scenario, amounts to about 25 billion francs by the year 2030.

The middle scenario assumes an immigration of 40,000 people per year, compared to 30,000 people per year in the low scenario. If the resulting additional deficit is apportioned to every resident of Switzerland, the additional burden is about 3,100 francs per resident.

High additional burden beginning in 2020

Aside from immigration assumptions, assumptions on wage development also enter this projection. In addition, there are other estimates by Avenir Suisse and Schweizer Gewerkschaftsbund (Swiss Federation of Trade Unions) based on a study of migration’s influence on AHV particularly, without linking it to different wage developments. The results show a very similar impact. It underscores the topic’s explosive nature that parties of very different political viewpoints reach very similar results.

According to the projections, the majority of the additional burden will occur between 2020 and 2030. While the additional burden by 2030 will amount to about 25 billion francs, the estimated additional burden by 2020 is “only” 5 billion. This highlights the pressure for reform with respect to “Altersvorsorge 2020”, because the measures associated with it are supposed to become effective in 2020. Whether the measures envisaged in the reform package will suffice to cover the arising additional deficit seems quite worthy of discussion.

Spending every franc only once

Until now, Switzerland has been an attractive place, especially for highly skilled, high-income people. According to a special analysis of the AHV statistics from 2008, about 240,000 EU citizens out of about 1 million EU contributors had an AHV income higher than 80,000 francs, which is the pension-building maximum. All income beyond that is extra cash for AHV, because those high incomes can be considered as stabilizing contributions for AHV.

It remains to be seen if Switzerland, with a restrictive immigration policy, will still be able to attract highly skilled, high-income people. There are certainly good arguments for and against limiting immigration. It is fairly safe to assume, though, that social insurance and AHV in particular, will be among the losers with the immigration initiative. It is imperative that the accruing deficits will be covered on the expense or financing side, for example, in the form of higher contributions or lower pensions, because even with AHV, every franc can only be spent once.

Photo: Photocase / boing