All Swiss employees recognize the importance of the topic of retirement, but studies and experience show that there remain vast gaps in understanding of the pension system, which is especially relevant when reforms may be required on certain elements of the 1st and 2nd pillars. Retirement expectations also differ greatly between the younger generation and older employees nearing retirement. In the end, it is often a matter of trust in the Swiss pension system, and some work remains to be done for all Swiss employees to have full confidence in the retirement system to take a more active part in their own financial planning. For example, the retirement age is relatively easy to understand for all but, the conversion rate is much harder for Swiss employees to understand, especially as this is a key benefit parameter and differs significantly between different pension funds and employers.
Employee understanding of their retirement benefits is also financially important for companies because retirement benefits are typically their most costly spend on employees outside of cash remuneration (salary and bonuses). This means that employers should have a strong interest in understanding employee attitudes and appreciation of their retirement benefits. The recent 2022 Global Benefits Attitudes Survey from WTW shows that indeed, retirement benefits are the number 1 area where employees are looking for more support from their employer. This comes even ahead of flexible work, career management, and emotional health among other things.
In addition, many younger employees feel that they will receive less than their elders from the Swiss pension system pillars and this can lead them to believe that they need to receive more education and flexibility from the pension provider versus what is generally provided today. A stark statistic is that 65% of employees think they are not saving enough for retirement compared to what they should. The potential retirement savings gap is the greatest with low salary and female employees. For these people the inability to save in the short term often makes it difficult to reach long term retirement goals.
The graph is showing that 65% of the employees think they are not saving enough for retirement compared to what they should.
They saved 9 percent of their income but think they ideally should have saved 14 percent. This results in a gap of 5 percent.
The answer to this challenge lies both in reform and greater employee education but certainly, in terms of communication and technology, it is interesting to learn that employees using retirement apps are more likely to say that their retirement plan meets their needs. In fact, nearly 70% of employees who regularly use apps state that their retirement plan meets their needs. The issue: today in Switzerland the overall employee use of apps for tracking and planning retirement is only at about 9%, mostly because not many retirement apps are yet being provided in the market. This is an area where employers and their pension funds could make a real difference by offering better communication tools (such as apps) to improve their employee’s appreciation and understanding of the value of retirement benefits provided and how to plan for their longer-term goals.
The investment of pension fund assets is also receiving more attention in the Swiss pension market lately as more and more employers and pension funds need to consider Environment, Social and Governance (ESG) related factors for investment decisions. ESG factors are not only financial factors linked to the quality of an investment, but they can say a lot on the durability of one investment. Our survey shows that around a third of employees have an ethical preference for ESG (regardless of return outcome impact) while the remaining two thirds want to focus on maximum returns but have varying views on how ESG investment will perform in the long run. Interestingly, the vast majority of those wishing to focus on maximum returns are either not sure or think that ESG approaches will lead to lower returns in the long run. There is clearly work needed to understand the impact of ESG practices on long term investment returns and risks, and especially considering a developing area of “greenwashing” marketing whereby investment products conduct marketing tactics to make them appear more environmentally friendly when that may not actually be the case. In general, we can see that public pension funds are generally required to make an assessment on their approach on ESG as they usually report to government related entities.
Finally, even though recent reform ideas are having difficulty finding a consensus, the retirement landscape is evolving rapidly and more lately a return of inflation may also require employees to adapt again to manage their expectations regarding retirement age, expected pension level and required level of contribution. A somewhat alarmingly statistic from this survey is that despite all the challenges mentioned by employees on planning for retirement and their self-proclaimed gap in retirement savings, there are still around 80% of Swiss employees who expect and hope to retire at or earlier than the current normal retirement age. Will retirement provide sufficient income for these employees?