Switzerland: prepare for population ageing to maintain high living standards

(Eberhard Grossgasteiger, Unsplash)

This article is brought to you in association with OECD.

Switzerland enjoys some of the highest per-capita GDP and living standards of OECD countries. Taking action now to prepare for a fast-ageing population will be key for the prosperity and well-being of future generations, according to a new OECD report.

The latest OECD Economic Survey of Switzerland says retiring baby boomers and rising life expectancy will lift the share of the population aged 65 or over to almost 30% by the 2050s, a faster rate of ageing than most OECD countries. The share of people over 80 will double by 2045 to 10%. Updating the pension system and lengthening working lives is crucial to ensure adequate old-age incomes for all and avoid ageing becoming a burden on firms and workers.

The Survey, presented in Bern by the OECD’s Director of Country Studies Alvaro Pereira alongside Swiss State Secretary Marie-Gabrielle Ineichen-Fleisch and Eric Scheidegger, head of the Economic Policy Directorate of the State Secretariat for Economic Affairs (SECO), projects 2019 growth slowing to 0.8% due to increased trade tensions, a deceleration in Europe and the fact 2018 was boosted by income from international sporting events, as Switzerland hosts related sports associations. Underlying growth will remain moderate in 2020 but GDP will again be lifted by sporting events. Given Switzerland’s open economy, risks to the outlook include escalating global trade tensions and economic uncertainty.

Switzerland benefits from high employment and productivity, and has avoided the rising inequality seen in most advanced economies. Yet the employment rate drops for older workers, and pension replacement rates are likely to fall over time, which risks raising income inequality. The burden of rising ageing-related spending will fall largely on cantons and municipalities.

The Survey recommends moving ahead with plans to fix the retirement age at 65 for both sexes, then gradually raising it to 67 and linking it thereafter to life expectancy. Making wage-setting more flexible, flattening the age-related progressivity in pension contribution rates and doing more to combat age discrimination could also facilitate longer working lives. To further ease pension pressures, the rate at which accumulated assets are converted to a pension should be lowered, as the current level redistributes too much from younger workers to retirees.

Ensuring access to quality health and long-term care will be another challenge as the population ages. Average spending per person is the second highest in the OECD and further reducing costs will be key to limit the burden on the public purse and households. Access to long-term care should be improved.

The Survey also looks at how Swiss firms and workers are adapting to an increasingly digital world, and finds that adoption of new digital technologies has not kept pace with leading countries. Switzerland has excellent digital infrastructure but usage of key technologies is low, and just 43% of Swiss adults possess advanced digital skills.

Addressing barriers such as digital skill shortages and a lack of competition can raise productivity and help secure Switzerland’s continued economic prosperity. Facilitating high-skilled immigration from non-European countries would contribute to meeting the needs of a changing labour market alongside efforts to improve skills in the domestic workforce.