echo-interview with Gerhard Pfister, member of Switzerland’s National Council and President of the Christian Democratic Party (CVP)

elipsLife echo: Mr Pfister, old age provisioning is one of the issues of greatest concern for the Swiss public. But for 20 years now, there’s been no progress on reforming the system. Are the country’s policy makers close to failing on this issue?

Gerhard Pfister: It’s not the fault of the policy makers. Look, I’ve noticed how people’s awareness of the challenges facing the pension system has been increasing. The political campaign surrounding the AV 2020 reform of the pension system revealed very clearly that people are intensely interested in this topic and want their questions addressed. And our politicians are doing their best to find solutions to the problems. I should point out, however, that thanks to our system of direct democracy in Switzerland, it’s not the politicians that call the tune but the sovereign people.

In the collapse of the AV 2020 reform, the CVP was on the losing side. Was it a mistake to form an alliance with those on the left?

Not all. In Switzerland you can’t push through social reforms with a united left wing against you. So it’s sensible to join forces with the moderate faction on the left. And we were able to do that with the AV 2020 reform. I’ve never really understood why certain people were so fiercely opposed to the 70 Franc increase in AHV pension contributions. Admittedly, it wasn’t a perfect bill but it was definitely one that would have been a step in the right direction, at least for the next eight years. Now we’ll see whether the next step in the right direction fares more favourably with the voters. But somehow I have my doubts.

Following the referendum debacle, the Federal Council now intends to reform the first and second pillars of the pension system separately. What are the most important issues for the CVP in this connection?

We want to maintain the pension level across both pillars. Furthermore, we’d like to see the AHV recapitalised for as long a period as possible, which would also necessitate the retirement age of 65 applying both to men and women. That said, raising the retirement age of women would require some sort of compensatory mechanism. A straight repeal of the existing arrangement would still stand no chance of being accepted by voters. I believe the CVP and the FDP assume a special responsibility regarding the reform of the AHV. These two parties need to take the lead in finding a sound, pragmatic solution and should also try to gain the support of the other parties.

How do you intend securing the additional income the AHV needs?

On the same basis we proposed for the AV 2020 reform. We can’t just on go adding new elements to the next bill. Instead, it’ll be about combining the elements from the AV 2020 reform in different way. We won’t be able to secure the financing without raising value-added tax. The political debate will focus on how far the increase should go.

Has the CVP put a ceiling on an increase in value-added tax?

At this juncture, it wouldn’t be sensible to quote a number. The debate surrounding the AHV reform has only just begun and we don’t know when the bill will actually be tabled in parliament. So it would be wrong, at such an early stage, to say this or that is something we can’t agree to.

Where do you stand on raising the contributions made by companies and employees?

When the last bill was tabled, the employers tended to send out mixed signals on this subject. They attacked this funding method, even though they knew that any new bill would have to incorporate an increase in contributions. I would add, however, that any increase should be kept within limits. We don’t want to further weaken Switzerland’s competitiveness as a place to work and produce.

Switzerland’s tried and tested 3-pillar system is the envy of the world, but in the country itself it enjoys far less support. Why do you think this is?

I see things differently. The 3-pillar system is an excellent approach: the first pillar provides for individuals’ vital needs, the second generates benefits based on a social partnership model and the third enables people to take individual responsibility for their retirement income. I don’t share your view that the benefits of such a structure are not recognised in Switzerland. Of course there are differing political emphasis. For example, those on the left consider the AHV to be more important, for those on the right it tends to be the personal responsibility element. But all in all, it’s an ingenious system. The only defect I see is in the second pillar – where in line with the Zeitgeist of the 1980’s – the responsibility for the conversion rate was shifted onto the Federal Council. The assumption was that the rate would never fall below the level it was at that time.

On the subject of the pension funds: Isn’t there a danger that the interest rate environment and demographic development could undermine the second pillar and that we become victims of benefits promises that ultimately can’t be kept?

Yes, there is this risk. I actually believe that the second and first pillars are equally threatened. And I don’t understand why the Federal Council, too, no longer considers recapitalising the second pillar as such an urgent matter. Delaying this measure and leaving it to the social partners to decide is not sensible. We’re living increasingly at the expense of the younger generation. During the AV 2020 campaign, I was very aware that most people appreciate the gravity of the problem and the need for action. We can’t put off confronting the issues surrounding the second pillar merely because we’re unwilling to address unpleasant questions.

Should retirees also be asked to participate in the recapitalisation of the second pillar or are already acquired pension rights a taboo topic?

We’d be well advised not to make any changes to pension rights. Such a measure would be a last resort – and I really don’t think we’re at that stage yet. However, we have to do everything we can to get the system fit for the future. To call pension entitlements into doubt would be tantamount to cutting back the general pension level. I consider that to be not only a political non-starter but also unjustified from an ethical point-of-view.

Should the state provide incentives for the third pillar in order to take the pressure off the first and second pillars?

Absolutely. I’m a fan of the third pillar and have been contributing to the scheme for more than 25 years now. This is where the state has a good opportunity to strengthen individual responsibility on the part of its citizens and to really motivate young people to save. There’s definitely room in old-age provisioning for a greater degree of liberalism and personal responsibility. And personally I believe that’s exactly what’s needed.

What do the pension funds need to do to prevent the second pillar being driven over the cliff?

I have enormous respect for the tasks the pension funds have to deal with today. The conditions are unbelievably tough. To maintain the performance necessary in this kind of environment without taking overly large risks is really challenging. Against this background, the pension funds would be well advised to let the politicians know how grave the investment situation has become. Although the sheer expertise and competence in the Swiss financial centre are unequalled worldwide, I think we’re too conservative when it comes to investing. As far as the pension funds are concerned, we need to liberalise both investment policy and the possibilities for investment.