Implementation with Hurdles: Mandatory Old-Age Occupational Provision

In 1972, the three-pillar principle of pension provision became enshrined in the constitution, declaring occupational provision mandatory. The article was only implemented in 1985. Pension funds were also reformed, though to a much more modest extent than originally intended.

Read on Close

The aim of occupational provision was to secure a ‘regular standard of living’. In any case, this was the statement that figured in the federal constitution in 1972 alongside mandatory affiliation to occupational pensions. Conversely, the AHV was restricted to securing subsistence-level income as part of the three-pillar principle.

The Federal Council and Parliament initially planned to pass a law on occupational provision in 1974. However, the Act on Occupational, Old Age, Survivors’ and Disability Provision (BVG) only entered into force in 1985. Due to the recession of the mid-1970s and the early 1980s as well as the growing conservative criticism of state welfare, the solution turned out much ‘slimmer’ than announced: in contrast to the pay-as-you-go AHV, the BVG was based on funded financing. However, resources were also drawn from proportionally allocated wage contributions. Existing pension funds continued their operations, but were subjected to legal regulation. A benefit structure more favorable to policyholders failed in the legislative process; according to this plan, pensions would have been allocated according to pre-defined targets (or “defined benefits” in contrast to pensions where benefits could vary according to contributions). Furthermore, the idea of indexing occupational pensions to price and wage trends could not find a political majority. Moreover, the BVG excluded the unemployed and part-time workers – the majority of which were women – as well as low-income workers from the insurance obligation. On the other hand, the option of supplementing provision by means of tax-exempt individual savings accounts and insurance schemes (the «third pillar») was implemented without any major controversies.

In anticipation of the new regulations, the share of workers with occupational provision had already sharply increased before the BVG entered into force, reaching 62 percent of workers in 1984. The value of assets managed by pension funds soared too, amounting to 37 billion francs in 1970 (41 percent of gross national product) and had jumped to 167 billion francs by 1987 (74 percent). In 2011, the pension funds managed assets worth over 600 billion francs.

Literatur / Bibliographie / Bibliografia / References: Leimgruber Matthieu (2008), Solidarity without the state? Business and the shaping of the Swiss welfare state, 1890–2000, Cambridge; Lengwiler Martin (2003), Das Drei-Säulen-Konzept und seine Grenzen: private und berufliche Altersvorsorge in der Schweiz im 20. Jahrhundert, Zeitschrift für Unternehmensgeschichte, 48, 29–47.