Annuities in Switzerland
Switzerland's pension system has attracted considerable attention, mainly due to its reliance on a three-pillar structure. A relatively small pay-as-you-go system (first pillar) is complemented by a mandatory, employer-based, fully funded occu...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2007/12/8877327/annuities-switzerland http://hdl.handle.net/10986/7567 |
| Summary: | Switzerland's pension system has
attracted considerable attention, mainly due to its reliance
on a three-pillar structure. A relatively small
pay-as-you-go system (first pillar) is complemented by a
mandatory, employer-based, fully funded occupational pension
scheme (second pillar). The main goal of this paper is to
provide a detailed description and analysis of the Swiss
pension system. Particular emphasis is placed on the second
pillar and its role in the provision of old age benefits
within the Swiss social security system. The paper shows,
for example, that a typical individual with an uninterrupted
career can expect a net (after-tax) replacement rate of at
least 70 percent. Occupational pension plans are highly
regulated. Minimum interest rate requirements and minimum
conversion rates (at which the accumulated retirement
balances are transformed into annuity streams) introduce
many elements of defined benefit plans into notionally
defined contribution schemes. The resulting money's
worth ratios are very high (with the exception of single
males). Switzerland also has a high annuitization rate by
international standards (approximately 80 percent). However,
due to high fragmentation of the scheme and non-uniform
accounting practices, some aspects of the system are not
very transparent. The paper sheds light on the financial
health of the pension system and the evolution of the
regulatory framework in the past two decades. |
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