The history of Swiss social insurance

An international comparison of the Swiss social insurance model in 2023 shows that it performs very well across the board, although historically this has not always been the case.

Until well into the 20th century, Switzerland had a lot of catching up to do in terms of social policy – even in important areas such as comprehensive accident, health and unemployment insurance. The well-known three-pillar principle of retirement provision, of which Switzerland can be very proud today, is also a relatively new development from a historical point of view, which initially faced quite a few obstacles along the way.

The following article aims to provide an overview of the development and history of Swiss social insurance and to illustrate the reasons and causes behind the transformation of Swiss social policy from a formerly delinquent laggard to a self-confident international leader in social issues over the past one and a half centuries.

Inhalt

1. Introduction
2. Before 1900
3. 1900 to 1924
4. 1925 to 1947
5. 1948 to 1984
6. 1985
7. 1986 to today
8. Outlook for the future

Introduction: the Swiss three-pillar principle explained in simple terms

The three-pillar model is one of the most important pillars of the Swiss insurance system and deals with the important issue of retirement provision. The basic principle of the three-pillar model is to divide the insurance benefit into three entities – the namesake pillars:

1st pillar: OASI & IV

OASI (for: Old-age and Survivors’ Insurance) is a state old-age pension that serves to secure a livelihood in retirement age. The first pillar also includes invalidity insurance (IV), which comes into play in the event of premature incapacity to work, for example due to disability or incapacity to work as a result of an accident. It also governs statutory supplementary benefits (EL) for securing livelihoods and payments under unemployment insurance (ALV)

2nd pillar: mandatory and extra-mandatory occupational pension provision

The second pillar expands the financial benefits of the state’s retirement provision to include the financial benefits of the pension funds. It is financed by contributions calculated as a percentage of income, paid equally by the employee and the employer, and is intended to bridge the pension gap between the first pillar and the previous income of the pensioners, so that the accustomed standard of living can be maintained even after retirement.

The law prescribes a minimum salary range in which savings must be made for employees in the second pillar. In addition to the mandatory portion, voluntary additional contributions can be paid in to increase the ultimate withdrawal of a pension from the second pillar.

3rd pillar: private pension provision

In addition to the mandatory first two pillars, Switzerland also has the voluntary third pillar of private pension provision. It is intended to provide additional protection and comfort in retirement for all those who pay contributions to corresponding private pension providers during their employment.

The third pillar is divided into restricted pension provision (3a) and flexible pension provision (3b). While pillar 3a is subject to certain conditions, but in return also offers benefits such as special tax breaks, pillar 3b offers more flexibility and individually adaptable forms of private savings, investment and insurance.

Under certain circumstances, the pension amount accumulated in the third pillar can already be paid out before retirement, for example to finance residential property, as financial start-up assistance when starting self-employment or in the event of permanent migration to a non-EU/EFTA country.

In addition to the comprehensive rules governing pillar-based retirement provision, the Swiss social security system now includes compulsory insurance and state-regulated additional benefits, primarily:

• Accident and health insurance.

• Unemployment insurance and loss of earnings compensation scheme (EO).

• Statutory compensation.

• State family support.

Let’s now take a look at the historical developments that led to the development of the modern Swiss social system.

Social security in Switzerland before the 20th century

Swiss social security systems and the statutory financial protection they provide have become an integral part of today’s world. Until well into the 19th century, however, social security was largely based on the security provided by one’s own family and the voluntary support of friends, acquaintances, the church and cooperative and trade union funds.

However, social policy measures by the state as part of the welfare laws in force at the time, which were mostly financed by donations, only took effect in certain cases and were, in principle, low. The first thoughts on establishing effective support services for the poor, the elderly and the sick at federal level began in the second half of the 19th century.

The period before the 20th century was marked by major changes in Switzerland. At the political level, the country became a federal state in 1848, which also led to the establishment of the country as a single economic area for the first time.

Fuelled by these developments, the effects of progressive industrialisation were particularly felt at the social level. Factories with modern machinery, mainly located in urban economic centres, gradually replaced traditional crafts and led to a shift in the working life of the population from the countryside to the city.

For many workers and families, the resulting mobilisation meant detaching themselves from long-established, supportive village communities and thus increasing personal responsibility in emergency situations. Added to this was the heavy dependence on employers, whose favour often decided who had an income – sometimes even housing – and who did not. The result was an unprecedented threat of poverty that swept across broad sections of the population.

In view of this disturbing demographic change, the “social question” was first addressed around 1850. Until then, poverty had in many cases often been regarded as self-inflicted and the people affected were therefore not considered worthy of help. However, the onset of the economic crisis in about 1870 at the latest, established the idea of the state as the representative of the interests of all citizens, which must assume responsibility for all citizens. As a result, the call for a comprehensive social reform to protect socially disadvantaged people – especially those at risk of poverty due to age – grew progressively louder.

The early years of modern social security

The envisaged social reform began in 1877 with the so-called Factory Act, which for the first time intervened in the freedom of contract of Swiss employers and laid down the first occupational health and safety regulations. For example, child labour, night work and Sunday work were banned, a maximum daily standard working time of 11 hours was stipulated and the first maternity leave was established, while employers could now be held liable for accidents in the workplace. The Swiss law was praised internationally as progressive.

However, the foundation of the modern social security system was laid by the German Reich in the 1880s, more precisely between 1883 and 1889. The new insurance system there, which guaranteed benefits on the basis of legal entitlement and independent of individual needs, also quickly became popular in Switzerland – although it would take several decades before it was enshrined in law here as well.

In order to first create the conditions for such a system, the corresponding constitutional foundations had to be adopted in Switzerland. As a first step, the federal government was therefore given the authority to establish compulsory accident and health insurance by means of a popular vote in October 1890.

The beginnings of the Swiss social system (1900 to 1924)

Lex Forrer and the beginning of compulsory insurance

The time had come in 1900 and the power to legislate led to the first actual bill for the new Swiss health and accident insurance – the Lex Forrer, named after Ludwig Forrer, who was passionately committed to introducing a social insurance system for Switzerland. In addition to payments in the event of illness or death and benefits for new mothers, the draft also provided for a disability and survivors’ pension as part of the associated accident and military insurance.

Despite the approval of the draft by all parties and the trade associations, the vote failed at the ballot box and was rejected by around 70% of the voters. After all, military insurance was adopted just one year later and brought into force the following year, 1902.

This marked the initial milestone in the history of Swiss social insurance – the introduction of compulsory social insurance for soldiers, which protected them against accidents and illness, guaranteed them an invalidity pension if necessary, or paid out death grants and survivors’ pensions to their relatives.

The founding of Suva and the Federal Social Insurance Office (FSIO)

Ten years later, in 1912, the next big step towards modern social security followed: the introduction of compulsory accident insurance for industrial employees and blue-collar workers in selected other professions.

The bill was based on Lex Forrer, which was rejected in 1900, and also included the introduction of voluntary accident insurance for all those not included in the compulsory scheme, as well as voluntary health insurance for anyone who wanted to take advantage of it. From 1918 onwards, responsibility for accident insurance was transferred to the Swiss National Accident Insurance Fund (Suva), whose responsibilities include accident prevention to this day.

In addition, the Federal Social Insurance Office (FSIO) was founded in 1913 before Suva. The FSIO was primarily responsible for the proper implementation of the Health and Accident Act, including the recognition and subsidisation of health insurance funds, as well as for the establishment of social insurance agreements with foreign countries. From the foundation of Suva, the FSIO was also responsible for its supervision.

World war, pandemic, general strike and the boom in private pension provision

After these first triumphs, Switzerland experienced difficult years: the First World War caused a shortage of food and housing and, by the end of 1918, plunged about a sixth of the population into hardship. In addition, the Spanish flu claimed around 25,000 lives in the same period. Despite the critical situation, measures at federal level – with the exception of unemployment benefits – were largely absent. Meanwhile, the communes and cantons stepped in and organised soup kitchens, food distributions and staff restaurants.

The unfortunate social situation finally led to a nationwide strike in November 1918. The strike fuelled renewed calls for reforms, this time for a secure food supply and the introduction of women’s suffrage, as well as old-age and invalidity insurance, amongst other things.

From 1916, the private pension sector also experienced an upswing for the first time. Triggered by the decision to exempt pension payments from war tax, the number of pension funds increased from just around 100 in 1911 to over 1,000 in 1930, a tenfold increase. At first, it was mainly public sector employees who took advantage of these services, but the number of members of the private sector also grew rapidly.

In 1922, proponents of private pension provision finally merged to form the Swiss Association of Support Funds and Foundations for Old Age and Disability – and life insurance companies also accelerated their advance during the 1920s with collective agreements for companies that wanted to offer their employees pensions even without their own pension fund.

The establishment of the OASI: the cornerstone of the three-pillar model (1925 to 1947)

Following the advance of the pension funds in the early 1920s, the foundations were finally laid for a nationwide compulsory old-age and survivors’ insurance scheme in 1925. On 6 December, two thirds of the electorate voted in favour of the constitutional basis that made it possible to introduce the OASI and later to introduce invalidity insurance (IV).

The sudden support for such an insurance was due not least to the fact that concessions to the left after the strike of 1918 were deemed urgently necessary. The temporary exemption of invalidity insurance from the then draft by Edmund Schulthess was passed after concerns were expressed about the financing of the law through direct tax collection.

Despite this measure, the first actual bill – the Lex Schulthess, which provided for compulsory insurance, a standardised pension of 200 francs from the age of 66 and needs-based subsidies, amongst other things – failed in 1931 with just 40% of votes in favour.

As in 1900, the main reason for the rejection was above all the unification of the liberal conservatives in protest against the feared statism and excessive insurance premiums. The failure of the Lex Schulthess meant that measures to prevent or alleviate poverty in old age remained the responsibility of communes and private welfare for the time being.

The second Swiss compulsory insurance: the Loss of Wage and Income Ordinance

The situation in the Swiss economy and the labour market had become increasingly tense since the interwar period, but in particular in 1938 shortly before the outbreak of the Second World War, and unemployment figures rose considerably. Although a federal law on contributions to unemployment funds had been passed in 1924, insurance remained voluntary.

Until 1936, contributions to unemployment insurance funds were still mandatory in half of the Swiss cantons. However, only 28% of all employed persons were still insured against unemployment, and among women, this figure was not even a fifth.

In the winter of the same year, the unemployment rate rose to seven per cent; the elderly, disabled and women were once again particularly affected. The crisis boosted the number of members of unemployment insurance funds, but also their spending. During the Second World War, social expenditure in Switzerland grew from 4.7% of gross domestic product in 1938 to 6.9% in 1944.

In order to compensate for the loss of earnings during military service during the Second World War, compensation for loss of wages was finally introduced in 1939. In 1940, this was expanded to include the loss of wage and income scheme and henceforth also included the self-employed. Today, it is part of the loss of earnings compensation scheme. It compensated married soldiers with up to 90% of their income, but single soldiers received much lower payments.

The main objective of the order was to avoid social conflicts, such as those that led to the general strike after the end of the First World War, and to strengthen national solidarity. It was also the loss of wage and income regulations that ultimately formed the basis for the final introduction of the OASI after the end of the war.

First-time state pension

In 1935, the US adopted its own form of social security with the Social Security Act (SSA). In its first version, this already included old-age insurance; in 1939 a survivors’ insurance was added and in 1955 an invalidity insurance was added.

Like the OASI (old-age and survivors’ insurance), which was finally introduced in Switzerland and still exists today, the SSA had no negative impact on the private pension sector, as the payments from it were only intended to cover the basic needs of policyholders.

At the end of 1942, the William Henry Beveridge welfare model became popular in the United Kingdom, which outlined the model of a comprehensive national insurance scheme designed to cover contributors “from the cradle to the grave” and finally, from 1945 onwards, led to the expansion of the British social security system and the establishment of the National Health Service in 1948.

Inspired by these two systems, which were also viewed positively in Switzerland, and based on the existing loss of wage and income regulations, the Swiss Old-Age and Survivors’ Insurance, or OASI for short, was finally adopted in 1947.

The draft for this had been drawn up from 1944 by an expert committee convened by the Federal Council, took into account the demands of the Trade Union Federation and also enshrined the participation of trade associations. The OASI draft was adopted by an overwhelming 80% majority in the referendum and provided for the following:

• a uniform retirement age for men and women of 65 years

• a small old-age pension as basic security that would not affect private pension provision

• a needs-based transitional pension for people who had already passed the retirement age of 65

• an old-age, widow’s and orphan’s pension based on contributions

• equal financing of the OASI through contributions from employees and employers as well as from the federal government and the cantons (in particular through income from alcohol and tobacco taxes)

The OASI pensions were paid out for the first time at the beginning of 1948.

Progressive expansion of benefits (1948 to 1984)

The establishment of the OASI at the beginning of 1948 marked the start of a multi-decade phase of increased expansion of the Swiss social system and its compulsory social insurance schemes. The major milestones included:

1960: Introduction of invalidity insurance

1966: Establishment of supplementary benefits to secure livelihoods

1977: Compulsory unemployment insurance

1985: Introduction of occupational pension schemes

As a result, the social security contribution ratio rose from 10% to 21% between 1950 and 1990, but was still lower by international standards at the end of this period. The Swiss social system also continued to be characterised by large gaps.

For example, health insurance in Switzerland has remained voluntary since general compulsory health insurance, which should have been introduced in 1949 as part of the vote on compulsory tuberculosis insurance, was scrapped along with it.

In addition, the economic boom in the period after the Second World War triggered a wave of immigration of foreign workers, who co-financed the OASI in full, but did not have an undisputed right to claims in case of need.

To counteract this, social security agreements were continuously concluded with other countries from 1949 onwards, which were intended to ensure, for example, the transfer of OASI and IV pensions abroad and the protection of foreign workers in the event of illness.

International social security standards in accordance with Convention 102

In 1952, Switzerland joined Convention 102 as part of the 35th International Labour Conference of the International Labour Organization (ILO) in Geneva. This set out the minimum social security standards of the ILO member states in areas such as disability and old-age provision, maternity protection and the security of medical care.

Switzerland has been a member since as early as 1929 and, as part of an ILO agreement, had already taken measures against discrimination against foreign workers in accident insurance.

At the time of its signing, however, Switzerland was still far from meeting the requirements set out in Convention 102; it was not until 1977 that most of them were ratified – including the creation of the IV and the adjustment of the pension model to economic developments and inflation in 1957. The latter measure caused Swiss pensions to increase by 60% to 70% in one fell swoop immediately after the reform.

Compensation benefits were also introduced in 1966 in order to compensate for pensions which were still below the minimum subsistence level. These were originally intended as a mere transitional solution, but were ultimately retained and have since become an integral part of the Swiss social security system. Nowadays, for example, compensation benefits cover the constantly rising costs of care in old age.

Introduction of compulsory occupational pension provision

In 1972, Swiss pension provision reached another important milestone: the decision to introduce a compulsory occupational pension scheme in addition to the OASI and private pension schemes.

On 3 December 1972, voters had the choice between two possible reforms of the pension system: on the one hand, there was scope for strengthening the existing OASI pension, which would have provided for a state pension of at least 60% of income as well as a minimum pension of 6,000 francs per year.

On the other hand, there was the introduction of mandatory pension funds, i.e. the introduction of occupational pension schemes, as is still the case today under the second pillar of Swiss retirement provision. The latter option was chosen with a clear 75% in favour. The law was not actually implemented until years later, in 1985.

Compulsory unemployment insurance as a result of the 1970s recession

After three decades of economic boom, Switzerland slid into a two-year recession between 1974 and 1975 due to the collapse of the Bretton Woods monetary system and the 1973 oil crisis. Despite the still low proportion of persons insured against unemployment in the population as a whole – in 1974, only 20% of the working population – the resulting increasingly unstable employment relationships led to continuous increases in social expenditure, especially on invalidity insurance.

As a result, the Swiss voted in 1976 on compulsory unemployment insurance for the gainfully employed, the financing of the insurance by means of salary deductions and its decentralised management. The proposal was adopted and the related law passed in 1982. Until then, an interim solution had been in place, which came into force just a few months after the referendum in 1972 and was supposed to cover 70% to 80% of the lost salary with 150 daily allowances.

With the entry into force of the act in 1982, the number of daily allowances was increased to 180. Moreover, additional compensation for short-time working, bad weather and insolvency as well as measures for labour market integration and the prevention of insurance fraud were adopted.

Indexation of OASI pensions

In order to ensure ongoing livelihood security as part of OASI retirement provision, it was necessary to regularly adjust OASI pensions in line with wage and price developments in Switzerland. Until 1972 this was done by means of regular parliamentary resolutions; however, in 1973 the first draft followed to automate this adjustment flexibly as part of the so-called “full dynamisation”.

In fact, a percentage increase was finally decided, which was enshrined in law in 1979, and provided for automatic adjustment according to the index every two years, which is still the case today. The mixed index used is the mean value between the national consumer price index and the wage index of the former Federal Office for Industry and Labour, i.e. the current State Secretariat for Economic Affairs.

Final introduction of compulsory accident insurance

After several failed attempts to introduce compulsory accident insurance in the preceding decades, it was finally adopted in 1984. The new Accident Insurance Act provided for compulsory insurance for all workers who worked at least 12 hours a week.

It was also stipulated that private insurers and health insurers may act as compulsory insurance providers, provided that they provide the same benefits as Suva. This led to a decline in the number of employed people who were insured with Suva and a reorientation of Swiss National Accident Insurance Fund with a focus on special customer orientation.

The birth of the Swiss three-pillar principle (1985)

Between the vote on the new second pillar of Swiss retirement provision and its actual implementation another 13 years. In 1985, however, the time had finally come and the Swiss three-pillar model was born with the establishment of the new old-age, survivors’ and invalidity pension provision.

While the first pillar, OASI, secures your livelihood, and private pension provision as a third pillar provides additional protection and comfort in old age, occupational pension provision (Occupational Pensions Act, OPA) as a second pillar bridges the gap between the two and serves to maintain the current standard of living – in other words, it is intended to close the pension gap.

Already in its first version, the BVG provided for equal financing by both the employee and the employer. Both parties contribute 50% of the contributions. The final pension amount is also based on these contributions, which, unlike the OASI, is not automatically adjusted to prevailing price and salary trends.

Unemployed persons, part-time employees and low-wage earners are excluded from compulsory insurance under the OPA.

Closing further social gaps (1986 to today)

The basic Swiss social security system has essentially remained unchanged since the three-pillar principle was enshrined in 1985. Nevertheless, a number of important gaps have been closed and existing regulations have been revised since then.

Introduction of compulsory health insurance

After the first attempt to introduce compulsory health insurance in Switzerland in the context of the Lex Forrer in about 1900, it would take almost a century before it actually found its way into Swiss law.

After several failed attempts at reform at the ballot box, the new Health Insurance Act (HIA) was finally adopted in 1994. This made health insurance compulsory in Switzerland for the first time.

In addition, freedom of movement and uniform premiums for all genders were defined, age groups abolished and the list of benefits provided by health insurers expanded.

Focus on activation

In the mid-1990s, the course of the Swiss social security system was first geared towards the idea of “activation,” i.e. the (re)integration of social assistance recipients into the labour market in order to counter the rising unemployment figures and promote the population’s financial autonomy.

As a result, the Unemployment Act was also revised in 1995 and new labour market measures were adopted – including the establishment of regional employment agencies and the expansion of further training courses and seminars for the unemployed.

These steps were designed, for example, to enable people with disabilities to return to working life in order to support themselves financially instead of being dependent on disability pensions.

Statutory family support

After the third attempt to introduce maternity insurance failed in 1999, this finally happened five years later – albeit as a compromise solution.

In September 2004, the electorate voted to introduce maternity benefits as part of the existing loss of earnings compensation scheme, to be financed by deductions from wages and to provide working mothers with 80% of their final income for 14 weeks before the child was born.

The Family Allowances Act was also passed in 2006. According to this, all citizens with children, regardless of whether they are in employment or not, are entitled to family allowances until the child reaches the age of 16 or 20 (in the case of children unable to work for health reasons). For children who are still in education, further education allowances of CHF 250 per month can be drawn between the ages of 15 and 25.

The path to the future

Over the past 150 years, Switzerland has made huge strides in the area of social security. Thanks to the gradual introduction of compulsory insurance in virtually all essential areas of social life, the establishment of the three-pillar model as an effective retirement provision scheme and other social policy measures by the state, problems that were once widespread, such as poverty in old age, lack of care for the needy or threats to the livelihood of the unemployed, are now largely a thing of the past.

Nevertheless, Switzerland is still a long way from being a genuine welfare state. Swiss social security systems still have some catching up to do in many areas and are also constantly confronted with new problems that need to be addressed.

Recent demographic developments, such as the increasing ageing of society, the declining fertility or birth rate or the declining mortality rate before reaching the statutory retirement age, are also shifting the age pyramid, making a significant contribution to the current problems of social security and urgently require innovative solutions.

To find them, the population must develop an awareness of the consequences of such demographic changes, while the state must present solutions that reflect and take into account the needs and concerns of the population as a whole. If this is not done, drafts to address current issues, such as pension insurance reforms, will continuously be rejected, as was the case most recently in the 2020 referendum on pensions.

Short-term social policy issues must therefore include, for example, when the old-age pension should actually be drawn; how exactly the pension should be calculated from now on so that the average old-age pension can continue to cover subsistence needs without exposing the institutions to the risk of possible insolvency; how pensions should be financed in the future; and what role private pension insurance will or must play in the future in view of changing age structures.

The history of Swiss social insurance is far from over.