Demographic Change: Challenges for Pension Funds

The baby boomers are reaching retirement age, and we are living longer than ever. What is welcome in itself puts the pension system under pressure: the number of pensioners is growing faster than the base of those who finance these pensions. Pension funds are particularly affected.

The most important facts at a glance

• The ratio is tipping: in 1948 there were 6.5 people of working age per pensioner; by 2050 the ratio falls to 2.2 (source: FSIO, based on FSO scenarios)
• Pensions are falling: pension funds pay 40 percent less today than in 2002 (source: VZ Pensionierungs-Barometer 2026)
• Conversion rate in decline: the statutory minimum fell from 7.2 percent (1985) to 6.8 percent; the average rate actually applied to men aged 65 fell from 6.74 percent (2010) to 5.30 percent (2025) (source: VZ VermoegensZentrum)
• Replacement rate collapses: on a salary of CHF 100,000 the pension now covers around 51 percent of the final salary, against over 62 percent in 2002 (source: VZ Pensionierungs-Barometer 2026)
• Rising funding pressure: with the first payout of the 13th AHV pension, the AHV’s pay-as-you-go result turns negative from 2026 and averages around minus 3 billion francs a year through 2040 (source: FSIO, financial perspectives of 2 July 2026)
• The gap is widening: whatever the first two pillars no longer cover is left to private old-age provision

Switzerland is getting older, with massive consequences

The demographic trend can no longer be ignored. A 65-year-old man now lives on average another 20.7 years, a woman of the same age another 23.2 years (FSO, as of 2025). In 1948, when the AHV was introduced, the figures were 12 years for men and just over 13 for women (FSIO). By 2050, life expectancy at birth will, according to the FSO reference scenario, rise further to 87.2 years (men) and 89.6 years (women).

But that is only one side of the coin. The other: The birth rate has been below the replacement level of 2.1 children per woman since the 1970s and fell to a record low of 1.28 children per woman in 2025 (FSO). Fewer births mean fewer people in work in the future. Added to this is the baby boomer wave: between 1955 and 1970, Switzerland experienced exceptional population growth. This generation is now reaching retirement age.

The calculation is simple: more and more people are drawing pensions, for longer and longer. Fewer and fewer people are paying in. In 2025, the number of people aged 65 and over exceeded the number of under-20s for the first time, 1,811,000 against 1,802,000 (FSO). Drawing on the FSO scenarios, the Federal Social Insurance Office expects 2.2 people of working age per pensioner by 2050. In 1948 there were 6.5.

Pension funds in a pincer grip

This demographic ageing is hitting occupational pension funds with full force. Unlike the AHV, which operates on a pay-as-you-go basis, pension funds are based on a funded system: Everyone saves for their own pension. However, this system is coming under pressure from two directions.

1. Increasing life expectancy means that pension funds have to pay out pensions over a much longer period. What had to last around 12 years in 1948 must now carry a good 20 years, with the same capital. If the conversion rate stays where it is, the arithmetic does not work.
2. The phase of low interest rates between 2008 and 2022 pushed down returns on the capital markets. The so-called “third contributor”, the income from invested pension assets, weakened for years. Although the turnaround in interest rates in 2022 brought higher potential returns again, massive valuation losses were initially incurred on bonds.

This combination of a longer payout period and lower returns is known as a pincer grip. As a result, pension funds have to adjust their benefit promises.

The conversion rate falls and so does your pension

Nowhere is the crisis more evident than in the conversion rate. This determines how much pension you receive from the capital you have saved.

An example: If you saved CHF 750,000 and retired in 2015 with a conversion rate of 6.25 percent, you would receive CHF 47,000 per year. If you retire today with 5.30 percent, you will only receive around CHF 40,000, over CHF 7,000 less per year.

The statutory minimum conversion rate in the mandatory BVG part is still 6.8 percent. In practice, however, most pension funds have long applied lower rates. In the case of so-called enveloping funds, which combine the mandatory and extra-mandatory parts, the effective conversion rate is often well below six percent. A shadow calculation ensures that the statutory minimum benefits are maintained.

When the BVG was introduced in 1985, the statutory conversion rate was 7.2 percent. With the much higher market interest rates of the time, that was affordable. The first BVG revision lowered it to today’s 6.8 percent between 2006 and 2014 (source: VZ VermoegensZentrum). The rate actually applied to men aged 65 kept falling, from 6.74 percent (2010) to 5.30 percent (2025); the Swisscanto study expects a linear decline to 5.25 percent by 2030 (source: Swisscanto Swiss Pension Fund Study 2025).

Reading tip: Retirement age in Switzerland: optimal retirement planning

What does this mean for your wallet?

The replacement rate, i.e. the ratio between pension and final salary, has fallen on a salary of CHF 100,000 from over 62 percent (2002) to around 51 percent. On CHF 150,000 it is just under 42 percent, against around 58 percent in 2002 (source: VZ Pensionierungs-Barometer 2026). The higher the salary, the wider the gap. The legislator’s goal that AHV and BVG together should reach 60 percent of the last earned income is missed at these salary levels.

Pension funds pay 40 percent less today than in 2002. Taking the AHV and the pension fund together, expected retirement pensions are down 16.4 percent against 2002; the AHV has absorbed part of the decline in BVG pensions (source: VZ Pensionierungs-Barometer 2026). There are several reasons for this decline: falling conversion rates, lower interest rates on retirement assets and the systemic redistribution from the working population to pensioners.

This is another problem: many pension funds currently pay out higher pensions than the insured persons have saved during their employment. This difference is cross-financed by the retirement assets of active insured persons. Redistribution from young to old, an issue that is increasingly undermining the acceptance of occupational pensions among younger generations.

Political reforms: Progress and setbacks

Politicians are trying to take countermeasures. With the AHV 21 reform, which came into force in 2024, the reference age for women is being gradually raised to 65. In addition, retirement has been made more flexible: you can now draw your AHV pension between the ages of 63 and 70. Value-added tax rose by 0.4 percentage points to 8.1 percent in 2024 to generate additional income. From December 2026, a 13th AHV pension will also be paid out for the first time, an additional annual supplement designed to support pensioners’ purchasing power. Parliament decided on its financing on 19 June 2026: value-added tax is to rise by a further 0.4 percentage points from 2028. Because this requires an amendment to the Federal Constitution, the people and the cantons vote on it on 29 November 2026.

However, occupational pension provision is faltering. The BVG 21 reform was rejected by the people in 2024. The plan was to reduce the statutory conversion rate from 6.8 to 6.0 percent, combined with a pension supplement for the transitional generation. The no vote means that the pension funds will have to continue to make adjustments in the extra-mandatory area, with all the problems of lack of transparency and redistribution.

In its Economic Survey of Switzerland, the OECD has recommended for years that the retirement age be raised gradually to 67 and then linked to life expectancy. Denmark and the Netherlands, whose pension systems resemble the Swiss one, have already done both.

Reading tip: Vested benefits account: Basics & tips on payout, interest and investment strategies

The funding gap continues to widen

Financing old-age provision remains strained. With the first payout of the 13th AHV pension in December 2026, the AHV’s pay-as-you-go result turns negative and averages around minus 3 billion francs a year through 2040 (source: FSIO, financial perspectives of 2 July 2026, reference scenario at 2024 prices). Pension funds are also under structural pressure. Without further reforms, two levers remain: higher contributions or lower benefits.

This development does not affect everyone equally. Part-time employees, the majority of whom are women, are particularly hard hit. Due to the coordination deduction and the entry threshold, many part-time salaries remain completely or partially uninsured. The BVG 21 reform would have brought improvements here, but after its failure the situation remains unresolved.

Consolidation in the sector is also progressing. In 1987 the statistics counted 6,151 active pension institutions; in 2024 there were 1,292 (source: FSO, pension fund statistics). This trend is likely to continue, which brings both advantages and disadvantages: more efficiency and professionalism on the one hand, and fewer tailor-made solutions on the other.

What you can do now

In view of this development, personal responsibility is becoming increasingly important. Here are some concrete starting points:

• Make consistent use of pillar 3a. The tax advantages are considerable. For 2026, employees with a pension fund can pay in up to CHF 7,258 and deduct it from their taxable income. If you don’t have a pension fund, you can pay in up to 20 percent of your earned income and a maximum of CHF 36,288. Since 1 January 2025, the revised BVV 3 has also allowed missed pillar 3a contributions to be purchased retroactively. Only gaps from the 2025 contribution year onwards can be closed; the first purchase is possible in 2026, at the earliest for the 2025 gap. The ten-year window builds up over time.
• Know the difference between an account and securities. A pillar 3a account earns almost no interest at the current policy rate, while securities solutions carry price risk. Which form comes into question depends on the investment horizon and on risk capacity. FINMA-regulated providers such as Everon run investment strategies from conservative to dynamic, from sustainable to private markets.
• Check purchases in the pension fund. If you have gaps in your contributions, you can close them by making voluntary payments. Purchases are deductible from taxable income in the year of payment and increase the retirement assets. How much pension this produces depends on the fund’s conversion rate.
• Get an overview of all three pillars. Pension certificate, vested benefits assets and pillar 3a accounts often sit with different providers. Bringing them together is what makes the gap visible in the first place.
• Consider flexible working in old age. AHV 21 provides incentives to work longer. Anyone who continues to work beyond the reference age pays no AHV contributions on an exempt amount of CHF 16,800 per year and per employment relationship; income above this remains subject to contributions. Since AHV 21, you can waive this exemption and use the additional contributions to close gaps, which can increase your later AHV pension. Pension fund contribution options and tax advantages are retained.

Reading tip: Private financial planning: how to achieve your individual goals

Professional wealth management as a building block of your pension provision

The declining benefits from the first and second pillars make private pension provision indispensable. However, a pillar 3a savings account alone is hardly enough to close the resulting gaps. With a policy rate of zero percent (SNB, as of September 2026), account balances earn almost no interest, while even modest inflation erodes their purchasing power. Securities investments offer higher potential returns and carry price risk in exchange.

As a FINMA-regulated wealth manager, Everon implements systematic, quantitatively sound investment strategies that tie investment decisions to fixed rules rather than to gut feeling. They build on factors documented in the research literature, and stock selection runs through the proprietary “Everon Portfolio Engine”.

The strategies differ in their orientation: The multifactor strategy combines several valuation criteria. The income strategy is geared towards regular income from dividends. The Smart Global Markets strategy is an ETF-based solution for those looking to invest in global markets at low cost. And for investors with a focus on sustainability, the Sustainability strategy offers exclusively ESG-compliant investments.

Advanced investors can also invest in private markets, an asset class that was previously reserved for institutional investors. Private equity, private debt and private real estate widen diversification, at higher risk and with a longer capital commitment.

In addition to pillar 3a, you should not neglect unrestricted pension provision (pillar 3b). While tied pension provision is tax-privileged but can only be withdrawn upon retirement, pillar 3b offers maximum flexibility. There are no contribution limits and no lock-up until the reference age. In return, contributions are deductible only within the general insurance deduction, which is often already used up by health insurance premiums.

Outlook: The system remains, but needs to be adapted

The Swiss three-pillar system spreads the risk across three carriers: the pay-as-you-go system (AHV), capital cover (BVG) and private pension provision. If one pillar falls behind, the others carry on. The comparison above shows exactly that: the AHV has absorbed part of the decline in the second pillar.

However, the parameters urgently need to be adjusted. The demographic trend is not a surprise; it has been foreseeable for decades. Other countries such as Sweden, the Netherlands and Denmark have already built in automatic mechanisms: The retirement age there automatically adjusts to life expectancy. Switzerland is lagging behind here.

Intergenerational fairness is becoming a key concept. One generation must not live at the expense of the next. Today’s pensioners still benefit from historically high conversion rates, while young people have to reckon with significantly lower pensions and higher contributions at the same time.

The turnaround in interest rates has given pension funds room for maneuver again. In 2025 they credited retirement assets with an average of 4.7 percent, against an average return of 6 percent (source: Swisscanto Swiss Pension Fund Study 2026).

Demographic change will continue to shape the pension system. The figures have been settled for years; the open question is when the parameters will be adjusted.