Such confidence is, in its turn, of fundamental importance in ensuring that the occupational pension system can perform its key economic role. This consists of giving people the certainty that the assets they have saved in their pension scheme during their working lives will actually be available to them in their old age. A good pension system makes it possible for people to reliably plan their future material needs, and fosters security for individuals and stability for society. It is therefore a key precondition for the prosperity and development of a modern economy. A healthy pension system is central to ensuring social cohesion and is one of the cornerstones of Switzerland’s success. With its three pillars – AHV, occupational pension schemes and private pension provision – Switzerland has for several decades operated a comprehensive and well-functioning pension system. Our pension arrangements have been envied abroad, which is also reflected in the relevant rankings. In recent years, however, our country has lost considerable ground in this discipline (cf. chart 1). Have we become worse, or have the others improved? Whatever one might think about such comparisons, it is in Switzerland’s own interest to do everything it can to ensure that the pension funds – as key players in the whole system of pension provision – are able to manage the numerous challenges facing them as effectively as possible. In what follows, therefore, I will look at two important and specific challenges: the ongoing low interest rate environment and the rise in life expectancy.
for economic growth, inflation, and the average achievable nominal return – were based on empirical figures that were wholly plausible in the 1980s when the occupational pension system was calibrated. For some years, however, interest on investments across all maturities has been exceptionally low. For a closer examination, it is useful to differentiate between the long and the short term. Let us first look at the development of long-term interest rates, represented here by the yields on Swiss, German and US ten-year government bonds since 1995 (cf. chart 2). There is a clear downward trend. The decrease in Germany – and therefore in the euro area – was even more pronounced than that in Switzerland. What are the causes? I would like to highlight some factors I consider particularly important. To some extent, this development is due to the fact that since the 1990s the efforts of central banks in the advanced economies to bring down previously high inflation rates have been increasingly successful. As a result, the markets deemed the central banks’ pledge to maintain price stability to be credible. Inflation expectations consequently became anchored at a much lower level than before. The amount of interest that investors would normally demand as compensation for future inflation thus also decreased. If this reduction in interest rates were to be taken into account accordingly in the aforementioned pension fund parameters, the lower return would not in itself be fundamentally problematic for the pension funds, as their invested capital would also be subject to less inflation.