Lukas Müller-Brunner, director of Swiss pension fund association ASIP, has warned of the long-term socio-political consequences of increasing pension funds’ members withdrawing capital as lump sums.
With lump sums, risks are transferred from the second pillar pension system as a whole to individual members of pension schemes, and “this makes me worry”, he said in an interview with Swiss broadcaster SFR.
Pension capital withdrawals have increased sharply in the last decade, reaching CHF14.8bn (€15.8bn) in 2022, according to Swisscanto report.
Lump sum withdrawals mean savers not only have to manage money themselves but they also have to put aside enough reserves until the end of their life, otherwise social solidarity will be unduly strained, ASIP said.
Taking over both investment and longevity risks when withdrawing capital can have socio-political consequences in 20-30 years, Müller-Brunner added.
High and lower amounts are withdrawn as lump sums from Swiss pension funds, he said, for different, legitimate reasons, for example health reasons.
Pension fund members can overestimate or underestimate how long their money will last, with public institutions stepping in if funds are not enough. A strong social welfare state can lead to people deciding to withdraw capital, instead of opting for monthly pension payments.
“We have a good welfare state, we don’t leave people on the streets at the end of [their] life, and this can lead in individual cases of people deciding to withdraw capital [as pension], and when it’s not enough they have a sort of insurance policy,” he added.
Müller-Brunner is against putting limits to lump sum withdrawals or getting rid of tax incentives, for example for those who decide to pay voluntary contributions in the second or third pillar pension systems.
His remarks come as the Swiss government plans to scrap tax incentives by reforming the system of voluntary savings for occupational or private pensions.
“We propose to tax capital withdrawals in the same way as pension withdrawals. What becomes less attractive is contributing [for pensions] at the age of 50 or 55,” said Serge Gaillard, the head of the group of experts tasked by the government to draft a report on austerity measures to save budget money, and increase income, including from pensions, in an interview with Tages-Anzeiger newspaper.
Gaillard added that over half of Publica members surveyed recently justify the lump sum withdrawal with tax savings.
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