What impact will COVID-19 have on the intergenerational contract?
Georges T. Roos, Future Researcher The intergenerational contract encompasses more than secure pensions. The corona crisis in particular makes this clear. But it will also have to be adapted to future circumstances, even independently of pandemics.
From a general perspective, the lockdown measures have a single key target: intensive care capacity and the number of available ventilators. It seems clear that COVID-19 is particularly dangerous for older people (and vulnerable people with pre-existing conditions) – the older you are, the greater is your risk of dying. It follows that the drastic measures taken to suppress coronavirus were first and foremost taken to protect the elderly and vulnerable members of the population. If our healthcare system is no longer able to provide those in critical condition with optimal treatment, then we have failed. The price we are paying is high – the survival of whole industries is under threat, our economy is likely to be hit by a long-lasting recession, and debts are mounting. Nevertheless, the majority of the population backs the measures. Human life is sacrosanct – and how we treat the most vulnerable among us is the bar against which this is measured. Its importance cannot be weighed against economic prosperity.
A fair pension system
The population of Switzerland is ageing. According to predictions by the Federal Statistical Office, the proportion of the population aged 65 and over will reach 25 percent by 2040. The number of people aged 80 or over is expected to double. An increasingly elderly population presents a challenge for the intergenerational contract. In 1960, for every person of retirement age, there were six people of working age. In 20 years, this ratio will have fallen to 1:2. For every person of retirement age, there will only be two people of working age. This is a difficult trend when it comes to ensuring future pension payments, not only for Switzerland’s Pillar 1 old-age and survivors’ insurance (OASI), but also for its Pillar 2 occupational pensions – which, although not originally designed that way, is also increasingly structured such that the older generation is financed by the younger generation. From my perspective, the question is not whether Switzerland will be able to ensure sufficient pension payments in future, but how to structure the pension system fairly. Should the demographic burden be chiefly borne by the future working population (greater salary deductions, higher taxation, more VAT), or should it be borne proportionally by future retirees (later retirement, lower pension payments)?
Will the coronavirus crisis be an additional strain on the intergenerational contract? This is not something that is currently being discussed. On the contrary, for many, the current crisis has highlighted the fact that the intergenerational contract is not just about ensuring pension payments – and it isn’t a one-way street. The contribution made by grandparents to the lives of their children’s families is currently being sorely missed by many. In 2018, 72 percent of grandparents regularly or occasionally looked after their grandchildren. A service that has now been cut short by federal decree. Previously, this enabled their children to pursue their professional activities, in addition to offering other psychological and relationship benefits. Many older people also offer financial support, e.g. helping their children to buy a home through advancements on inheritance. Total inherited assets are worth a whopping 60 billion francs a year. Then there is the volunteer work carried out by many older people. Older people participate significantly in official and unofficial forms of volunteering.
As a future researcher, I think in terms of potential scenarios: what if there is a second or even a third wave of the coronavirus pandemic? Will we be able – or willing – to support another lockdown? What if unemployment skyrockets because the economy takes years to recover, or keeps being knocked back by new pandemics? What if pension funds and OASI make losses on the investment market over the years, plunging them faster and more deeply into serious difficulties? There’s no doubt that such a scenario would increase the tension of the intergenerational contract. It is conceivable that in such a scenario, healthcare policy would cut back on measures aimed at older and vulnerable people in particular. This would mean the permanent loss of grandparents as family babysitters. It would also mean the financial burden on the working generation would not rise indefinitely. The government would probably have to step back from its stance of wanting to save every possible life.
Adapting the intergenerational contract
Current President of the German Bundestag Wolfgang Schäuble recently stated in an interview: ‘When I hear that everything must take second place to the protection of life, then I must say: that is not right in such an absolute sense.’ He says this as a 77-year-old, adding that the risk for young people is much greater, as he is closer to the natural end of his life.
The intergenerational contract will have to adapt – based on demographic developments, with or without a global pandemic. Society – in particular young people, who are most impacted by social distancing – stands in solidarity with the older generation. The coronavirus crisis doesn’t nullify the intergenerational contract, but it makes it even clearer that it will have to adapt to future circumstances.