A Tale of 3 Pillars - A Brief History of Swiss Social Security

February 16, 2018

 

Switzerland - Banking, Chocolate, Watches, and Skiing…

 

Today, Switzerland is renowned for its high standard of living, and bustling financial sector. In 1946, however, this small, mostly agrarian nation was experiencing post-war poverty, population shifts into cities, and changes in family structure.

 

At the time, only about 1 in 10 citizens had any sort of pension, forcing the elderly to work until their deaths, or return to live with their children upon retirement.

 

 

The First Pillar – State Pension Plan

 

On July 6, 1947, the Swiss voted in favour of creating the state social security system, known as OASDI (Old-Age, Survivors’ and Disability Insurance), to provide a minimal annuity for all retired citizens, the disabled, orphans, and widows, and later, widowers. Today, this is known as the First Pillar.

 

Following 8 separate revisions between 1951 and 1975, and the indexation to cost-of-living of First Pillar annuities from 1979, the Swiss realized by the mid-1980’s that their one-legged stool needed additional support.

 

The country had become industrialized, life-expectancy and cost-of-living had increased substantially, and the First Pillar OASDI annuities were no longer enough to ensure the financial security of the population.

 

The Second Pillar – Occupational Pension Plan

 

Starting with the success of the December 3, 1972 vote on the concept of a Three-Pillar system, and a parliament vote in 1982, the obligatory occupational pension, or BVG, was introduced in 1985.

 

This placed the lion’s share of responsibility for retirement savings onto employers and employees in equal parts, alleviating the burden on state resources.

 

From 1985 until 2000, the basic structure of the Three-Pillar system remained unchanged. In 2003 and 2010, annuity conversion rates became the subject of debate, as life expectancy continued to increase. Twice over, conversion rates were decreased to stabilize the system.

 

The Third Pillar – Private Pension Plan

 

Created in parallel with the Second Pillar, and regulated by the same 1985 legislation, the Third Pillar idea was shaped by popular initiative between 1969 and 1972, supported by Swiss insurance companies and the corporate lobby.

 

The idea was to encourage citizens to take financial responsibility for their retirement, by providing tax-efficient and financially-protected savings mechanisms, with both insurers and banks. These would later be divided into either long-term retirement savings accounts or life-insurances (Pillar 3a) or flexible savings accounts or life-insurances (Pillar 3b).

 

Today, the Swiss pension system braces for major reforms, following the rejection of the "2020" reform project by the population during last year's vote. An aging population, decreasing birth rates, and record high cost-of-living have made private savings critical, and caused stability concerns, and talk of reform, throughout the pension system.

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