The current situation of Old Age and Survivors’ Insurance (AHV) and disability insurance (IV) in Switzerland reveals significant financial challenges. Updated forecasts predict a 5.3 billion franc deficit for the AHV by 2033, while the IV owes over 10 billion francs. Concerns over rising disability claims and a surge in new pensions complicate matters, prompting calls for urgent reforms. The federal government faces scrutiny for its optimistic projections and lack of effective strategies to address these growing financial issues.
The Current State of AHV and Disability Insurance in Switzerland
When it comes to the Old Age and Survivors’ Insurance (AHV), emotions often run high among the Swiss populace. This was particularly evident during the spring vote on the 13th AHV pension, and the public outcry continued into the summer when the federal government acknowledged that it had underestimated the future of the AHV.
“The misforecast jeopardizes trust in politics,” remarked Swiss television. In light of this situation, the director of the Federal Office for Social Insurance (BSV) chose to resign. The Greens party even went as far as requesting the Federal Court to reconsider the popular vote regarding the proposed increase in retirement age for women.
Revised Forecasts and Growing Concerns
In the meantime, the BSV has updated its forecasts, revealing that the AHV is projected to experience a deficit of 5.3 billion francs by 2033, a significant improvement from the previously estimated 7.5 billion. However, another challenge has emerged: the disability insurance (IV) owes the AHV over 10 billion francs. Just a year ago, the BSV had predicted that the IV could reduce this debt to 3 billion by 2033. Lucerne senator Damian Müller expressed skepticism about these calculations, stating, “I have always considered this calculation unrealistic,” and urged the BSV to reassess the IV’s financial outlook.
The recent report from the BSV brought more alarming news: rather than achieving a cumulative surplus of 7 billion francs over the next decade, the balance is now expected to fall into a deficit of 400 million francs. Müller expressed his discontent, saying, “The forecast has deteriorated so significantly in just one year reveals serious shortcomings,” and emphasized the need for the Federal Council to take immediate action.
How did the projections worsen so drastically in such a short time? According to a BSV spokesperson, various assumptions in the calculation model were updated, particularly the exit rate from the IV, which determines the likelihood that individuals of working age can reintegrate into the workforce.
The exit rate used in the model had been approximately double the actual measured figures, leading to a decline in the IV’s balancing result by over 400 million francs in 2030. Müller highlighted the importance of successful reintegration, stating, “If the actual success rate is so far below the target value, we must urgently work towards better integration.” However, the BSV defended its position, asserting that the corrections in the model do not imply that reintegration measures are failing.
Another pressing question emerges: how credible are the IV forecasts from the federal government? Over the past decade, the number of new pensions has surged by nearly 50 percent, now exceeding 23,000 annually. Despite this trend, the BSV’s baseline scenario predicts a reduction in new pensions to only 21,000 in the future, which Müller deems overly optimistic, especially given the rise in disability pensions related to mental health issues.
“We should not trivialize these cases as ‘pseudo-invalids’ but rather take the societal development seriously,” Müller stated, advocating for the formation of a task force to address these challenges.
The BSV asserts that it employs three different scenarios to transparently illustrate how financial outlooks vary based on the development of new pensions. However, even the BSV’s pessimistic scenario seems overly optimistic, projecting only a 6 percent increase in cases over the next decade. If this unfavorable scenario materializes, the IV could face an enormous cumulative loss of almost 4 billion francs by 2033, making debt repayment to the AHV virtually impossible.
Concerns about rising disability claims are growing. Andreas Heimer from PK Rück noted two years ago that cases of incapacity for work rose by 20 percent in just a year, labeling it an “alarm signal.” Heimer emphasized the importance of early intervention, as it generally takes two to three years for work absences to translate into IV pensions.
Unfortunately, the upward trend in new pensions shows no signs of slowing down, which not only escalates IV costs but also affects pension funds, compelling them to demand higher risk contributions from employees.
The IV has faced restructuring challenges before, requiring a temporary increase in value-added tax from 2011 to 2017 to maintain balance. Another tax hike would come at a critical time, as the AHV also requires additional funding.
Failure to address the IV’s 10 billion franc debt will have repercussions for the AHV’s financial stability. The loan is poorly interest-bearing, generating only 51 million francs annually. If the AHV could invest this capital in its own compensation fund, it could have potentially gained an additional 4 billion francs over the past decade. Continuing with the current approach jeopardizes both the AHV and IV systems, yet the federal government remains silent on strategies to bridge the growing financial gap.