Part-time work leads to significant losses in pension provision
Published: Thursday, Jan 25th 2024, 12:00
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Part-time work is becoming increasingly popular in Switzerland and this has an impact on retirement provision. Anyone who decides to reduce their workload must expect a loss of income after retirement. In addition, the trend towards part-time work threatens to put even more strain on the financing of the Swiss pension system, as UBS points out in a study.
As part of the study published on Thursday, the UBS Pension Forum attempted to explain the extent to which part-time work influences future pension benefits. Discussing this is not easy, as many factors are decisive, said economist and pension expert Veronica Weisser at a video conference.
Unsurprisingly, a key factor in determining future pension benefits is the lower income achieved in part-time work. What is often underestimated is the effect of salary growth. UBS pension expert Elisabeth Beusch warned that, measured in Swiss francs, this is clearly less pronounced over the years for part-time workers than for full-time employees.
Based on the lower average income, part-time workers initially receive a lower AHV pension in the first pillar of the pension system, the report continued. This "pension loss" is not too significant for single people and usually not at all for married couples, as the joint pension of the couple is capped early on.
The picture is different in the second and third pillars. After all, significantly less retirement capital is saved in the occupational pension scheme (BVG - 2nd pillar) with lower incomes and part-time workers often lack the money to make voluntary contributions to the third pillar, explained Beusch. In addition, the loss of compound interest should not be underestimated.
Funding gap in the pension system
In its study, UBS also examined the impact that the trend towards part-time work could have on the future financing of the AHV in Switzerland. The experts already assume that there will be a gaping hole of around CHF 600 billion in the AHV fund due to rising life expectancy and the expected sharp increase in the number of people entering retirement.
"We are talking about pension promises for which we do not yet know how we will finance them," explained Weisser. The funding gap in the AHV will widen, especially if men increasingly decide to work part-time. Today, male labor force participation is still at a very high level compared to other countries, and this with high wages.
Meanwhile, the system could be relieved by a higher labor force participation of women, which is currently happening, it said. There is also potential in this regard among older employees. However, in order to put the pension system on a sound footing, structural reforms are needed above all. The UBS pension experts see an increase in the retirement age as one way of doing this.
In Switzerland, the pension initiative launched by the Young Liberals will be put to the vote on March 3 on raising the retirement age from 66 initially and linking the retirement age to life expectancy at a later date. Voters will also decide on the trade union initiative for a 13th AHV pension.
The Federal Council rejects both initiatives and the UBS experts also see major financial challenges ahead for Switzerland with the payment of a 13th AHV pension.
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