AHV popular initiatives: Financial expert analyzes redistribution effects and intergenerational justice. How do the initiatives affect pensions and retirement provision?

AHV popular initiatives: Financial expert analyzes redistribution effects and intergenerational justice. How do the initiatives affect pensions and retirement provision?

According to a report from www.nzz.ch, Switzerland is about to go to the polls on March 3rd, where two AHV popular initiatives will be voted on. The main issue here is the question of how the distributional effects of pensions should be designed. The AHV is an extremely popular social welfare scheme, but it hides massive subsidies for pensioners. Around 40 percent of the total spending of 50 billion francs per year is currently subsidized, although this amount is expected to continue to rise. Additional subsidies come in the form of contributions from high earners, which effectively serve as taxes and subsidize the pensions of others.

The two AHV initiatives differ significantly in their thrust. One calls for an increase in AHV pensions, while the other proposes a gradual increase in the retirement age. However, AHV pensions are not sustainably financed and, according to federal forecasts, are in danger of slipping into the red from 2031. This results in massive financial holes that need to be filled. This could be done either by reducing annual pensions, increasing the retirement age, increasing tax funding or increasing wage contributions.

An increase in pensions would increase redistribution from top to bottom, while at the same time redistribution from young to old would also increase. Conversely, increasing the retirement age would increase redistribution from young to old, but slow down redistribution from top to bottom. Pension policy is therefore characterized by hidden redistributions that are difficult to understand.

My analysis shows that the AHV has two main redistribution channels, one of which goes from high earners to low earners, while the other redistributes from young to old. Financing the union initiative to increase pensions would entail high costs, while increasing the retirement age also poses problems. Financing through wage contributions would maximize redistribution from young to old and from top to bottom and is therefore the preferred option of some on the left.

Overall, Switzerland is faced with the challenge of financing the AHV sustainably while maintaining redistributive justice. It remains to be seen how voters will vote on the two initiatives on March 3 and what impact this will have on the financial industry.