Generational transfers within the occupational pension system in Switzerland

Abstract

Solidarity, a key element of any social security system, can be defined as the total intended redistributions that take place between the existent groups within the system, with the purpose of helping each other. However, unintended redistributions also exist, affecting the fairness of the system and leading to animosities between these groups, in particular between active members and pensioners. Aiming to broaden the discussions on this topic, we identify the main sources of transfers between active and retired members pertinent to the Defined Contribution schemes within the Swiss occupational pension system, as such transfers are at the core of many political discussions. Thus we develop a tractable methodology allowing the pension funds to quantify these transfers. We then provide a numerical illustration of our framework, which shows that both active members and pensioners can benefit from unintended redistributions. Nevertheless, our methodology is meant to be adapted on a case-by-case basis in order to yield a better picture of the situation of each pension fund.