Aging Swiss Face Pension Funding Dilemma on Immigration

Photographer: Gianluca Colla/Bloomberg

Elderly pedestrians walk past traditional town houses in Zurich. By 2030, 24.2 percent of people living in Switzerland will be older than 65, the age at which men are eligible to retire. Close

Elderly pedestrians walk past traditional town houses in Zurich. By 2030, 24.2 percent... Read More

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Photographer: Gianluca Colla/Bloomberg

Elderly pedestrians walk past traditional town houses in Zurich. By 2030, 24.2 percent of people living in Switzerland will be older than 65, the age at which men are eligible to retire.

Simon Biddle has been a precious metals broker in Switzerland for 17 years. For him, growing old in the Alpine nation was never in the cards.

“I’ve enjoyed living in Switzerland,” said Biddle, 46, who’s returning to work in his native U.K. this summer and never learned German during his time at Cosmorex AG in Thalwil on the outskirts of Zurich. He moved to Switzerland “basically looking for a job” after Lehman Brothers Holdings Inc. closed down its precious metals desk in London. “I definitely have no intention of retiring here.”

Biddle is part of a growing number of highly paid immigrants who come to work in Switzerland and don’t retire in the nation of 8 million. Their social contributions have helped the Swiss state pension system AHV generate a surplus, while avoiding paying for their care in old age. The pension system, already under duress as the national population ages, is now threatened after voters in February chose to back a motion for Switzerland to introduce quotas on foreign workers.

While foreigners’ payments into the pension system allow them to later draw from it, the time lag between contributions and benefit payments props up the structure in the interim.

“The problem we have to solve would be much bigger without immigration,” said Stephan Cueni, the deputy director of the Swiss Federal Social Insurance Office, which manages the AHV. The first pillar of state pensions, which is intended to cover basic living expenses, “profits from immigrant workers from the European Union,” he said.

Photographer: Michael Buholzer/AFP via Getty Images

A pedestrian walks past an electoral poster for the "Stop Mass Immigration" referendum by the right-wing populist Swiss People's Party in Zurich in February. Switzerland's pension system, already under duress because of an aging national population, is now under threat after voters in February chose to back a motion for Switzerland to introduce quotas on foreign workers. Close

A pedestrian walks past an electoral poster for the "Stop Mass Immigration" referendum... Read More

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Photographer: Michael Buholzer/AFP via Getty Images

A pedestrian walks past an electoral poster for the "Stop Mass Immigration" referendum by the right-wing populist Swiss People's Party in Zurich in February. Switzerland's pension system, already under duress because of an aging national population, is now under threat after voters in February chose to back a motion for Switzerland to introduce quotas on foreign workers.

Pension Payments

The Feb. 9 vote, which forces the government to introduce immigration limits, has already created unease among companies and led to a halt of Swiss-EU electricity talks. It also risks calling into question the country’s pension system, which pays people aged over 65 an average of $30,275 annually.

By 2030, 24.2 percent of people living in Switzerland will be older than 65, the age at which men are eligible to retire. That compares with 17.6 percent last year and 11.5 percent in 1970, according to data from the country’s Federal Statistics Office. At the same time the proportion of Swiss residents between 20 and 64 will decline to 56.3 percent from 62.1 percent last year.

While an aging population is an issue in most of western Europe, Switzerland has the additional burden of a fertility rate of just 1.53 in the 2010 to 2015 period, compared with an average of 1.74 in the Organisation for Economic Co-operation and Development.

Forecast of Switzerland's Federal Statistic Office of the proportion of the country's population older than 65 Close

Forecast of Switzerland's Federal Statistic Office of the proportion of the country's... Read More

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Forecast of Switzerland's Federal Statistic Office of the proportion of the country's population older than 65

‘No Panacea’

Immigrants, who are on average younger than the resident population, have helped to slow down that demographic change in Switzerland, providing relief to the pay-as-you-go financing of Swiss pensions by raising the percentage of active workers financing retirees.

More than 70 percent of foreigners are between 20 and 64, while less than 60 percent of Swiss citizens are in that age bracket. If fewer immigrants come to work in Switzerland, the ratio of workers paying in and pensioners withdrawing deteriorates, according to the social insurance office.

Not everyone is convinced.

“Immigration defuses the aging problem only slightly, it is not a panacea,” said Daniel Kalt, chief economist at UBS AG. (UBSN) “If we would want to neutralize this problem solely via immigration, we would have to let so many people into the country that Switzerland’s population would reach 17 million by 2030.”

Only Young

The AHV’s capital climbed to 42.2 billion francs ($47 billion) in 2012. Immigrants from the EU and European Economic Area countries contributed 22 percent to the first pillar in 2012, while receiving a payout of 15 percent, according to the social insurance office.

“Ideally Switzerland would accept only young, highly-educated immigrants, then also in the future immigration could prove helpful,” said UBS’s Kalt, adding Switzerland would also need to move to a flexible age limit and increase retirement age gradually. The government last year proposed increasing the female retirement age -- currently at 64 -- to that of men.

About 20 percent of Swiss residents are foreigners and 45 percent of employees in the country’s chemical, pharmaceutical and biotech industry aren’t Swiss. Some 88 percent of Switzerland’s chief financial officers in a Deloitte survey said the vote would have “negative consequences” for Switzerland.

The Swiss government plans to draw up an implementation plan for the immigration vote by June and present a draft law by the end of this year. While the referendum didn’t specify how high those quotas should be, the vote initiators -- the anti-foreigner Swiss People’s Party SVP -- have suggested restricting immigration of family members as one option.

This would potentially keep foreigners from moving to Switzerland, said commodity trader Biddle, who is returning to the U.K. to join his girlfriend after his employer Cosmorex, part of Tullett Prebon Plc (TLPR), offered him a desk in London.

“I came over with my then wife,” he said. “I wouldn’t have come if I couldn’t bring my family.”

To contact the reporter on this story: Carolyn Bandel in Zurich at cbandel@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Zoe Schneeweiss, Albertina Torsoli

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