Updating of bases for predictive calculations relating to AVS
On 28 January the Federal Council approved a report entitled « Updating of bases for predictive calculations relating to AVS », drawn up in response to a request filed in June 2007 by the National Councillor, Louis Schelbert, calling for the preparation of further reports on changes which have occurred in AVS funding conditions.
This report proposes adjustments of the bases of calculation for AVS, relying on an enhanced model which takes account of demographic, economic and political trends previously left out of account.
These revised bases for calculation confirm that, even in the most optimistic of the three scenarios and data types envisaged (low, medium and high), it will no longer be possible, in the medium-long term, to guarantee AVS funding from current revenue sources.
Conclusions arising from the report
This report reexamines previous assumptions concerning the rate of contributors and average income subject to AVS contributions. The rate of contributors is expected to rise due to the increase in paid employment recorded among women. The average income on which contributions are payable is rising more sharply than the Swiss Wage Index (SWI), in particular when the economic situation is favourable.
As a result of these findings, the model applied in formulating predictive calculations of AVS has been corrected. The new model takes account of the anticipated increase in the employment rate in full time equivalent. Assumptions previously applied regarding the trend in real wages now incorporate the real trend in the average income on which contributions are payable.
Assumptions applied in calculating the future trend of the SWI have been revised downwards by applying a factor which reflects the structural change currently affecting the employment market. Assumptions concerning the trend in wages have been adjusted downwards accordingly. Estimates of the trend in the total value of contributions also take account of the structural change and trend in the employment rate in full time equivalent. The effects of these corrections translate into predictive calculations for 2020, involving additional revenue of 570 million francs and estimated expenses of almost 330 million francs less. The distribution figure is hence increased by 900 million francs (in the “medium” scenario).
Predictive calculations are regularly adjusted on the basis of the latest statistics and incorporate figures in the insurance trading account. Equally, assumptions regarding the future trend in the SWI and the structural factor must be regularly verified and, where applicable, adjusted.
As regards the long-term prognosis, it would be sensible to prepare AVS forecasts on the basis of assumptions broad enough to cater for the different possible financial developments. This will make it possible to incorporate any fluctuations in the economic situation and the demographic changes anticipated as a result of migration.
However, those who devised this model cannot claim to provide exact predictions of future AVS finances. It is impossible to build into such scenarios the eventualities of a sudden turnaround in the economic situation or drastic migratory changes.
The incidence of migration is in effect significant, particularly in terms of the level of AVS funding contributions. In view of the sharp fluctuations recorded in the past, assumptions regarding the migratory balance must be reviewed in detail when formulating new scenarios.
Taking more specific account of the employment rate and the structural change currently under way, AVS deficits are slightly below calculations to date. Due to the crisis on the financial markets, it can be predicted that the distribution figure will become negative in 2011, relying on the assumptions of the « medium » scenario. Even in the « high » scenario, AVS funding cannot be guaranteed in the medium or long term.
In line with the decision of the National Council of 19 March 2008, the 11th review must focus on the following points:
- Retirement at 65 for women as for men
- New regulations relating to early retirement
- Pace of adaptation of benefits in line with the status of the AVS Fund
- Abolition of the contribution exemption for active retired people
- Annual review of determinant income
Sources
Report