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.