22 May 2019
For many Swiss, the regular AHV and pension fund pensions will not be sufficient to keep the same standard of living after retirement (annual pensions have fallen by almost 9% in real terms since 2005, see Figure 1). Although it would make sense to voluntarily contribute money to the pension fund, most people don't. Retirement is still a long way off and there is no money left to pay into the pension fund next to the third pillar. The squirrel, which collects many small nuts for winter, can inspire us how it could work nevertheless.
Figure 1: Development of average annual pensions (Source: BFS-Pensionskassenstatistik, Berechnung SGB)
Inspiration from innovative Fintechs
The micro-investment app Acorns had the same source of inspiration: according to the motto "Imagine if you could invest in your future without really noticing", you can invest a very small amount every week, such as 5 francs in investment products, fully automatically. The following pictures show the Acorns App:
Figure 2: Impressions of Acorn's App
Would it also work in our pension system?
In Switzerland, it makes sense to use the money for a voluntary purchase into the pension fund. Thanks to tax relief and guaranteed interest at retirement age you get the most of it. But the purchasing process is not very attractive: it is long, complex, fragmented and still highly manual. With such a complicated and time-consuming process, it is clear that purchases are rarely made. In fact, an Acorns-like solution is simply unthinkable, because the cost of a small deposit far exceeds the amount. Wouldn't it be great to make a purchase with just one click, or even automatically and with small amounts like the Acorns app? After all, it is in everyone's interest for people to make provisions and have more money available as they get older.
Three ingredients for success
With the help of automated pension fund processes and open APIs, this vision can also become reality in Switzerland. Three ingredients are needed:
- A financial app for smartphones that enables the automatic payment of very small amounts according to a self-defined scheme, e.g. fixed 5 francs per week or one franc after each coffee purchase. It can be the app of a pension fund, an independent app or a mobile banking app. The cantonal bank of St. Gallen already has implemented a similar functionality with #HäschCash; however, the money goes into a savings account and not into the pension fund.
- Open and standardized interfaces (Open APIs) in the area of pension funds so that the financial app can access basic data on behalf of the customer and purchases can be easily simulated and triggered programmatically.
- Automated internal processes at the pension funds so that small amounts can be booked economically.
If all these three ingredients are available, nothing stands in the way of a new type of pension solution, which would be particularly interesting for people who, in addition to saving in the 3rd pillar, also want to improve the benefits of the 2nd pillar. They could improve their financial situation later in life with great effect thanks to weekly small purchases (i.e. without a great burden in everyday life). For the squirrel, every nut counts. Let's take advantage of the opportunities offered by digitalisation to strengthen our pension system!