The Swiss Three-Pillar Principle: Dismantle, Extend, Reform?

Robert Nef

    LI-PAPER. The so called “Swiss Three Pillar Principle” can be seen as an illustrative case for the debate on pension reforms, but not as a shining example.

    The problem of sustainable pension systems must be seen in the larger context of the basic problems of democracy and the welfare state. In the longer term — and here I'm thinking of two or three generations — the welfare state as it currently exists will become untenable in Switzerland, even if its three pillars do undergo minor renovation and readjustment. The combination of untrammelled centrally administered democracy and the welfare state is simply not practicable in the long term. A majority of beneficiaries attempts to extend the range of state benefits and services in its own favour while the burden of financing these benefits and services is borne by a highly and progressively taxed minority. Both recipes enjoy almost limitless popularity, and the political proponents of redistribution continue to celebrate electoral successes on the back of this "solidarity via the money of others". The only antidote is a braking system implemented via direct democratic vetoes in conjunction with competing tax subjects which will slow down the machinery of intervention, control and redistribution and bring it to a stop. In Switzerland we have had some good experience in this area, but it is unfortunate that precisely this competition between the systems has been centralised in the case of the First Pillar of the social insurance at federal level and in the case of the Second Pillar institutionally linked by means of a risk balancing strategy between the pension funds.

    Download LI-Paper (11 pages, PDF)

    October 2002

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