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 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.

Bibliographic Details

Main Authors:	Bütler, Monika, Ruesch, Martin
Language:	English
Published:	World Bank, Washington, DC 2007-12
Subjects:	ACCOUNTING, ADDITIONAL CONTRIBUTIONS, ADDITIONAL INCOME, ADDITIONAL PAYMENTS, ADDITIONAL PENSION, ADMINISTRATIVE COSTS, ALTERNATIVE INVESTMENTS, AMOUNT OF MONEY, ANNUAL WAGE, ASSET ALLOCATION, ASSET MANAGEMENT, AVERAGE CONTRIBUTION, AVERAGE PENSION, AVERAGE PENSIONS, AVERAGE WAGE, AVERAGE WAGES, BANK PRODUCTS, BANKS, BENEFICIARIES, BENEFIT PLAN, BENEFIT PLANS, BEQUEST, BOND, BONDS, BUSINESS CYCLE, CALCULATION, CALCULATIONS, CAPITAL MARKET, CAPITAL REQUIREMENTS, CAPITAL STOCK, CASH FLOWS, CHILD CARE, CLAIMANT, CONSOLIDATION PROCESS, CONTRIBUTION, CONTRIBUTION RATE, CONTRIBUTION RATES, CONTRIBUTION SCHEMES, CONTRIBUTIONS, CREDIT BALANCE, CREDIT BALANCES, CREDITS, CURRENT PRICES, CURRENT RATE, DEFINED CONTRIBUTION PENSION, DEGREE OF RISK, DEGREES OF RISK, DEPENDANTS, DIFFERENT INTEREST RATE, DIFFERENT INTEREST RATES, DISABILITIES, DISABILITY, DISABILITY BENEFITS, DISABILITY INSURANCE, DISABILITY PENSION, DISABILITY PENSIONS, DISCOUNT RATE, DISCOUNT RATES, DIVORCE, EARLY RETIREMENT, EARNINGS, EXPENDITURES, FAIR VALUATION, FEMALE WORKERS, FINANCIAL ASSETS, FINANCIAL CONSTRAINTS, FINANCIAL DIFFICULTIES, FINANCIAL HEALTH, FINANCIAL MARKETS, FINANCIAL POLICY, FINANCIAL SITUATION, FINANCIAL SYSTEMS, FIXED INCOME, FIXED INCOME INVESTMENTS, FREE ASSETS, FUND MANAGERS, GOVERNMENT BOND, GOVERNMENT REVENUES, GROSS INCOME, GUARANTEE FUND, HEALTH INSURANCE, INCOME, INCOME GROUPS, INCOME INCREASE, INCOME LEVELS, INCOME SOURCE, INCOME STREAM, INDIVIDUAL PENSION, INDIVIDUAL RETIREMENT, INFLATION, INSURANCE COMPANY, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL STANDARDS, INVESTMENT OPPORTUNITIES, INVESTMENT PORTFOLIO, INVESTMENT REGULATIONS, LABOR FORCE, LABOR MARKET, LIABILITY, LIABILITY MANAGEMENT, LIFE EXPECTANCY, LIFE INSURANCE, LIFE INSURANCE COMPANIES, LIFETIME, LIVING COSTS, LIVING STANDARD, LONG-TERM PROJECTIONS, LOW COST, LOW INCOME, LOW-INCOME, LOW-INCOME WORKERS, LOWER INTEREST RATE, LOW­INCOME, LUMP SUM, LUMP SUMS, MARGINAL UTILITY OF CONSUMPTION, MARKET CONDITIONS, MARKET DEVELOPMENTS, MARKET INTEREST RATES, MARKET RETURNS, MARKET RISKS, MARKETING, MARRIED COUPLE, MARRIED COUPLES, MARRIED WOMEN, MATURITY, MAXIMUM CONTRIBUTION, MAXIMUM CONTRIBUTION RATES, MINIMUM BENEFIT, MINIMUM BENEFITS, MINIMUM CONTRIBUTION, MINIMUM PENSION, MINIMUM RATE OF RETURN, MONTHLY INCOME, MONTHLY INCOMES, MORTGAGE, MORTGAGE PAYMENTS, NOMINAL YIELD, OCCUPATIONAL PENSION, OCCUPATIONAL PENSION SCHEME, OCCUPATIONAL PENSION SCHEMES, OCCUPATIONAL PENSIONS, OCCUPATIONAL PLANS, OLD-AGE PENSION, OLDER WORKERS, PENSION, PENSION BENEFIT, PENSION BENEFITS, PENSION COMPANIES, PENSION FUND, PENSION FUNDS, PENSION PLAN, PENSION PLANS, PENSION PROVIDER, PENSION PROVIDERS, PENSION REFORMS, PENSION SYSTEM, PENSION SYSTEMS, PENSIONERS, PENSIONS, POVERTY RATE, PRESENT VALUE, PRIVATE PENSION, PUBLIC PENSION, PUBLIC PENSION SCHEME, REAL ESTATE, RECESSION, REFERENDUM, REGULATORY AUTHORITIES, REGULATORY FRAMEWORK, REPLACEMENT RATE, REPLACEMENT RATES, RESERVES, RESPONSIBILITIES, RETIRED, RETIRED INDIVIDUAL, RETIRED INDIVIDUALS, RETIREMENT, RETIREMENT AGE, RETIREMENT AGES, RETIREMENT ASSETS, RETIREMENT BENEFITS, RETIREMENT DECISION, RETIREMENT DECISIONS, RETIREMENT INCOME, RETIREMENT INCOMES, RETIREMENT PLANS, RETIREMENT PRODUCTS, RETIREMENT PROGRAMS, RETIREMENT SAVINGS, RETURNS, RISK MANAGEMENT, RISK MANAGEMENT STRATEGIES, RISK PREMIUM, SAFETY NET, SALARY, SAVINGS, SAVINGS INSTRUMENTS, SMALL EMPLOYERS, SOCIAL INSURANCE, SOCIAL INSURANCES, SOCIAL SECURITY, SOCIAL SECURITY CONTRIBUTIONS, SUPERVISION OF PENSION FUNDS, TAKE-UP RATE, TAKE-UP RATES, TAX, TAX ADVANTAGE, TAX RATE, TAX TREATMENT, TRANSPARENCY, TRUST FUND, TRUST­FUND, UNEMPLOYMENT, VALUATION, VALUE OF PENSION, WAGE GROWTH, WAGES, WITHDRAWAL, WORK FORCE, WORTH, YIELD CURVES, YOUNGER WORKERS, ZERO COUPON,
Online Access:	http://documents.worldbank.org/curated/en/2007/12/8877327/annuities-switzerland https://hdl.handle.net/10986/7567
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