The history of the old-age pension
Hiking, traveling, culture – pensioners of today plan for an active retirement. In the history of humanity, this is a first. A survey of the development of old-age pensions.
The middle ages and early modern period: protection provided by church and family
The «good old days»? Not so much. In past centuries, most people never lived to retirement age. They died young due to epidemics, childbirth, famine or wars. Those who did survive worked until they were too old and weak to do so. They would then be reliant on their children's support, hoping that their family would maintain them in the traditional tiny backyard cottage on the family farm in which grandparents would live out their days.
Poverty and the poor
There have always been poor people in Switzerland who were reliant on the support of others. The permanent fear of impoverishment through accident or crop failure pervaded society. In the Middle Ages, poverty was even interpreted as a Christian virtue: Poor people would receive alms from the rich. In exchange, they would pray for the souls of the gracious donors and these prayers were deemed particularly effective.
The «deserving» and the «undeserving» poor
As the number of poor people increased through the crises of the late middle ages, society's view of the poor began to change. O children, widowed mothers and the elderly would be seen as «deserving» poor. Whoever was in principle capable of working was deemed to be responsible for their own plight and would have no claim to support, so we learn from the Historical Encyclopedia of Switzerland.
Marriage prohibition and beggar hunts
In the Old Swiss Confederacy, the representatives of the different regions would meet regularly for assemblies. One such assembly decided in 1551 that the local communities would be responsible for the impoverished – a rule which applies to this day. Accordingly, from this point onwards, most poor people were sent back to their home regions. In some places, they were prohibited from marrying in order to prevent the poor from having children. Nevertheless, deserving poor continued to increase in number. According to estimates, in the middle of the 18th century, 10 percent of the population of the canton of Lucerne were homeless. They moved around in groups begging and were increasingly perceived as a threat. During veritable «beggar hunts», the displaced would be caught and removed from the canton by the cartload.
The age of industrialization: societal change
Alone and defenseless in the city
While times were stable and crops plentiful, farming and artisan families would generally manage to support their parents, aunts and uncles. It would be rare for the almshouses of the church to have to step in. However, from the 18th century onwards, the ties of traditional family structure began to loosen. In the course of industrialization, the young increasingly moved to the cities for work, where they had no relatives. This caused old-age poverty to increase sharply, so we read in the Historical Encyclopedia of Switzerland.
19th century: the first retirement pension schemes
Responsible patrons
As a reaction to these changes in society, responsible entrepreneurs started to set up private retirement pension schemes for their workers from the 19th century onwards. These relief organizations focused on providing support in the event of illness, accident or death. Benevolent societies likewise aimed to mitigate the effects of such calamities. They would bring together certain professions or nationalities, fashioned according to the example of the guilds. However, support during old age was not yet a priority, in part because few people got really old.
Retirement pension schemes: Civil servants at the vanguard
Swiss civil servants were the first to benefit from a proper occupational pension scheme, with the gendarmes of Berne benefiting from around 1803, teachers in the Waadt canton from 1811 and teachers and policemen in Basel City from 1831. If factory workers reached retirement age at all, they would still often become charity cases; of the over 1,000 charitable organizations which existed in 1880, only 40 provided an old-age pension or one-off compensation payment. Even in those cases, funds were often insufficient to guarantee adequate old-age provision. The Fund for the Invalid and Elderly Factory Workers of the Zurich Spinning and Weaving Mills, an association of several companies established in 1861, formed a positive exception to the rule.
Sulzer: taking action for employees
The famous Winterthur machine manufacturer Sulzer took committed action for its employees early on. As early as 1845, only 11 years after its establishment, Sulzer set up an «illness support society for workers», a precursor to company sickness compensation schemes. In 1872, the company had the first 24 affordable workers' apartments built in the Winterthur area of Veltheim; many more would follow over the next few decades.
20th century: the development of the three-pillar system
Retirement pensions – not a political issue
When the Swiss federal state was formed in 1848, the principle of subsidiarity applied: everything that was not explicitly defined as the responsibility of the Confederation was the responsibility of the cantons and local councils. Accordingly, until the 20th century, there were no authorities on a federal level responsible for old-age pension provision. This changed for the first time with the Federal Constitution of 1890. A further milestone was the Illness and Accident Insurance Act of 1912, which, amongst other provisions, exempted insurance contributions from tax liability. This was one important reason for the number of benevolent funds and pension schemes rising abruptly after the First World War. By 1925, their number had swelled to 1,200 pension schemes with 262,000 members. Nevertheless, for several decades yet pension schemes would remain the preserve of privileged groups, for example civil servants, SBB public transport workers and employees of banks or insurance companies. For them, occupational pension schemes were an important means of achieving employee retention as until 1995, employees were tied to their employers by «golden chains»: if they changed workplace, their accumulated pension credits could only be partially transferred, if at all. Only since 1995 have employees been entitled to the transfer of all their pension credits to the next pension scheme upon changing workplace. Even employees of many years are now able to change their employer without the risk of losing their pension credits, which has rendered the Swiss labor market more liberal and dynamic.
OASI state pension plans– a contentious issue at first
Prior to the Second World War, the introduction of a state-funded pension scheme, the Old Age and Survivors' Insurance (OASI), did not command majority support: those who were already insured in the pension schemes feared that their savings would disappear into the public system and be lost to them. It was due to this resistance that OASI was only established in 1948. Since then, its task has been to secure a minimum living retirement income. However, from the 1960s onwards, it became increasingly clear that the first pillar on its own would not be able to prevent old-age poverty. This prompted a number of OASI reforms which endeavored to adapt the public benefits to the realities of people's lives.
BVG occupational pension plans – a process of change
Following many setbacks and discussions, obligatory occupational pension plans were finally introduced in 1985 in accordance with the «Federal Act on Occupational Old Age, Survivors' and Invalidity Pension Provision» [Bundesgesetz über die berufliche Alters-, Hinterlassenen- und Invalidenvorsorge], BVG for short. This was based on the vote on the three-pillar system of 1972, which had been clearly approved by 75 percent of those entitled to vote. Since then, the second pillar has been an established component of old-age pension provision for employees in Switzerland. Together with the AHV, it aims to secure the standard of life which the insured person has been used to. The pension payments are based on the contributions made by employers and employees. The amount of contributions depends on the employee's salary and the employer's specific pension plan. The annual interest payment on the saved pension credits is also referred to as the «third contributor» and significantly contributes to the accumulation of old-age capital. In their early years, occupational pensions were characterized by defined benefit plans, which would have guaranteed a particular pension amount. Due to significant changes on the capital markets at the start of the new millennium, the thinking shifted and defined benefit plans were replaced by defined contribution plans. Automatic adjustments to income and price developments did not find majority support. By contrast, the 3a pillar with its tax advantages gained the support of the public discourse. In the 35 years or so since the introduction of the BVG, there have been a number of reforms as the economic environment, people's life expectancy and interest rates have all changed sharply.
Present and future: new challenges
The money has to last longer
If a 65-year old man in 1981 could expect to live another 14 years, this has now increased to over 20 years. Accordingly, the occupational retirement provisions have to stretch over a longer period. In addition, the growing number of old people is causing issues particularly for AHV, which is funded by a proportionate contribution system. The second pillar too is affected. The most recent comprehensive reform, «Retirement Provision 2020», has failed for now, but the issue will not go away. After all, history shows us that societal change at all times goes along with the necessity to adapt old-age pension provision.
