3 Amazing Facts About Retirement Saving in Switzerland

The Geneva Association released the report because it, like U.S. insurance groups, is working to persuade policymakers that annuitization arrangements from private insurers can help increase aging Baby Boomers' well-being.

"Government-supported social retirement plans (Pillar I) are under extreme financial pressure due increased life expectancies and low fertility rates. Individuals are compelled to provide for themselves a suitable retirement through occupational pensions (Pillar II) and personal savings (Pillar III)," the association says in its teaser for the report. "The insurance industry can help, as it is the only industry that accepts longevity risk as a core business, and is a long-term provider of lifetime annuities—an insurance that a person will not outlive their retirement savings."

3 Facts About How the Swiss System Works

1. Swiss workers earn more to start with.

Swiss workers start out with a retirement savings edge, because Switzerland has an average of about $75,400 per year in gross domestic product (GDP), or national income, per resident. That's about 27% than the U.S. average of $59,300 in GDP per resident, according to 2017 GDP data from Swiss Re.

2. Swiss workers save a lot more than U.S. workers.

Switzerland has also persuaded its people to use about 19% of their disposable income for personal and pension savings.

Only 6% of disposable income in the United States, and 0.2% of disposable income in the United Kingdom, goes toward personal and pension savings.

3. Swiss workers, and employers, typically contribute a lot to defined contribution retirement plans.

The minimum required employer contribution is 2% of affected income, for the "basic option" for a 21-year-old employee. The maximum required contribution can be as high as 17.4% of affected income, for a worker ages 53 to 65 who is getting the richest possible level of benefits.

The minimum required employee contributions are the same as minimum employer contribution levels.

A retirement plan can let the participant withdraw 100% of the funds in a lump sum at retirement.

Otherwise, the plan must provide an annuitization feature.

In 2015, participants who were retiring annuitized 83% of the account funds that they could annuitize.

Swiss retirees do have to pay for their own health coverage, but "the income for people aged 65 and older in Switzerland far exceeds income for people in the U.K. and U.S. at the same age, Klein writes. "This is mainly due to a higher savings rate (including automatic escalation of contributions) and a higher annuitization rate."

Klein acknowledges that the structure of the Swiss system can lead to problems.

"Older workers may have a more difficult time finding jobs in Switzerland due to the increased cost to the employer for pension benefits," Klein writes.

Another challenge is that the structure of retirement benefits is so politically sensitive, even in Switzerland, that making even modest changes can be difficult, Klein says.

Pension reform "will only get more sensitive as populations continue to age," Klein writes.

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