Self invested over 30-40 years with average 7% a year will beat a pension fund by a huuuuuuuuuge margin. I can invest 100% into the stock market for 30-40 years, pension funds can’t. Time in the market beats timing the market.
Nice benefit but my stock portfolio will leave much more behind than that.
That is true mathematically but what if I die one day after receiving my pension? All the money is gone.
Minimum living expenses is covered by the first pillar.
In real insurance scheme outcome is random and by chance and the premiums are equal for people with the same risk. In AHV you have a systematic redistribution - we know ahead who will get more and who will pay more. It has nothing to do with insurance, but the name. It’s basically a tax transfer disguised to fool people and make them think that they get something extra, whereas they just fund other people’s retirement.
That’s why they call it “social” insurance - whenever politicians call something “social” then it usually means they what to change the original meaning of the word to fit something into their agenda (“social” justice, “social” security, “social” welfare, etc).
And those are? Nestle, UBS etc. are all not CPI-adjusted.
I don’t think that you’ll have underaged kids with 65+. So this is a risk that should be considered. Getting 50-60k out of 1M for the rest of your life sounds great, but not so much if you die 5 years later.
Even if it’s written in the regulation of a lot of pension funds, that they can adjust the pension based on the CPI, they won’t do it.
At the moment, the current conversion rate on the mandatory part is not sustainable. On the extra part, all pension funds are reducing it. The returns don’t give the pension fund enough money to increase the pension.
Currently, 2 billion is transferred each year from active workers to pensioners, because of the conversion rates.
Sure, there is a wealth redistribution element (the social part of it being a social insurance, indeed) but since it’s COLA adjusted and you get it until you die, it also covers the “risk” of exceeding one’s life expectancy. If you live to be very old, which we don’t know in advance, you will get more than you have put in. That risk is covered and affects people “equally” (depending on health factors so, yes, some people may know from the start that they may get screwed but those people also probably had a greater chance to need the IV part of the scheme during their working career so they benefit on that front).
And the something extra we get for those contributions is social and political stability, which is highly valued by companies (because they can plan based on known and agreeable circumstances) and benefits the wealthier among us (since it protects them from a whole range of harm that could come with social unrest).
We don’t do “social” out of charity, we do it because it’s cheaper and more comfortable than building prisons and paying a lot more for tribunals, police forces and special force dealing with cybercriminality. There’s a balance to be reached, sure, but a society with no social program, and no restricted access based on wealth doesn’t benefit the wealthier people, it benefits the people most willing to resort to violence to get what they want to get.
The probleme here is that life has nothing to do with fairness either. People live under different conditions, benefits have to be adjusted to match that. You’d have had a lower life expectancy if you were born a few years sooner, that also is not fair.
If we refuse to change anything to anything ever because of past benefits accorded to some and a “fairness” principle, we won’t ever be adjusting any law to any change in society, and we’ll get screwed. Change and adaptation are necessary, they happen, and they’re not “fair”.
As for the salamy tactics, people care about retirement schemes. Cutting their benefits are among the most difficult laws to pass. You won’t have the same debates, or the same people voting for the law, if you remove the redistribution effect that comes with an unsustainable rate. Rates won’t go to 2% unless it’s the higher achievable rate without redistribution or putting pension schemes at risk and even then, it would be very difficult to pass.
When we have an actual problem to solve, we can’t let fear of potential future imagined problems stop us from doing anything. We have to address the problem or never have a chance to address those fears for the future in due time because the system would have imploded before. We either face the problems now or let them getting bigger and try to face them later when they’re worse.
Why would shares not yield 7% over the long term? Isn’t that what they’ve done?
As for pension funds, yes, they may well yield 3-4%, but they will never credit you that amount! There is a reason why they give you 1%, and that’s because each year the government sets the minimum required return that has to be credited to individual accounts (currently 1%). So what do pension funds do with the extra returns? They make nice reserves for everything from market fluctuations to extra life expectancies.
So maybe calculate how to get to 910k with 1% returns vs getting to 1.33M with 7% returns…
A 100% equity allocation will beat any pension fund over the long term (40 years).
What they have done means little when it comes to the future. I think at current valuations the expected future returns are indeed lower than 7%.
Yes, they’ll credit you less than what they achieve, but 3% is not impossible, in fact I got 3% last year on the extra-mandatory part (less on the mandatory one), but sure, the stock market did better.
I like that a good portion of my wealth (aiming at around 20%) in not in my hands, so at least I can’t screw that part up.
The AHV is a demographic time bomb. I don’t remember the exact numbers, but when it was introduced, there were 6-7 employed persons for each retiree. In 20 years or so, the forecast is about two working persons for each retiree.
Unless something changes in the system: 
I agree. But we’re just kicking the can down the road. The government will have to do something. This reform now is nice but won’t solve the real problem.
I still expect AHV (or its potential successor) to pay me some money. On the other hand, I just hope that whatever reform will come in the future won’t target us here in the forum: Those who saved money for themselves.
I want to ask, not you specifically, just as a “response” to your statement generally, does anybody “know” what is the influence of the continuous productivity increase that has taken place and will still take place?
AHV was introduced in 1948 when productivity was probably around $5 to $10 GDP per hour.
source: Productivity: output per hour worked - Our World in Data
Now it’s around $70 GDP per hour.
So could the always smaller work force not keep the GDP approximately constant & thus still allow a constant AHV payout to the growing group of pensioners?
I know the AHV is not related directly to GDP or paid from GDP directly, but probably with GDP growing per worker hours, the salary grows and the amount that can be paid to AHV grows too, thus less workers supporting more pensioners.
Maybe at a stagnating level, but at CH level, that’s quite ok?
Also isn’t there a lot of immigration in CH which would compensate the demographic change?
Found the source; paywalled.
It says that immigration of highly qualified people won’t suffice and has been declining. The article says the only solution is to increase retirement age.
True, though standards of living were also a lot lower in 1948.