10 In the case where the retiree is eligible for a full pension, his insured monthly minimum pension is 1075 CHF (in 2005<sup>11</sup> ). The maximum first pillar benefit is equivalent to twice the minimum pension. Although it is difficult to put these numbers in relation to the subsistence needs due to the high variability of living costs in Switzerland, even the maximum benefit level does not exceed the poverty line by much - if at all.

The first pillar (AHV) distinguishes between “full” and “partial” pensions. Every retiree who has worked for at least one year is eligible for pension benefits. He gets a full– pension if he contributed over the entire mandatory period. Pension benefits can be claimed after the legal retirement age (i.e., for women at age 64 and for men at age 65), regardless of whether the agent leaves the workforce or not.

In case of death, the survivor can claim a 20 percent increase in his pension as long as he qualifies for an old-age pension, provided that the existing pension benefit plus the supplement does not exceed the maximal first pillar benefit. If the retired individual has children, (s)he can claim children benefits amounting to a maximum of 40 percent of the base AHV/AVS benefits per child. If both spouses are eligible for children benefits the sum cannot exceed 60 percent of the maximum first pillar pension (per child). A partial pension is paid if the contribution has not covered the whole mandatory period. For each contribution year missing, AHV/AVS benefits are reduced by at least 1/44.

Pensioners can claim supplemental, means-tested benefits to cover their living costs if their combined first and second pillar income is too low. In principle, these supplemental benefits are equivalent to the difference between an individual’s or couple’s income and the expenditures deemed necessary. The latter include the actual rent (or mortgage payments), so-called "basic needs" (a fixed sum per person) and actual health expenditures. Not all individuals qualifying for supplemental benefits claim them as they are still associated with a certain stigma, especially in rural regions. The take-up rate is approximately 50 percent, but no detailed information exists so far. The combination of a relatively flat benefit structure and supplementary benefits has led to a low poverty rate among the elderly in Switzerland<sup>12</sup> , although there are still gaps for low–income earners.

There is a contribution–benefit linkage in Switzerland, but the benefit scheme is relatively flat in reality. The qualifying yearly income is a weighted average of all income on which contributions have been levied. An adjustment factor is applied on earlier contributions to take into account inflation and wage growth. The linkage is depicted in Figure 6: Up to an average qualifying income equal to the minimum benefit, the AHV pension is also equal to this minimum benefit. It increases linearly to 1.5 times the minimum benefit until a qualifying income of 3 times the minimum level. (This latter number is also

> 11 The minimum pension is linked to a so called “Pension Index”. This index accounts for increasing wages and prices and is computed as the arithmetic mean of the wage- and price-index (cf. Art.33ter Para.2 AHVG; AHVG = Bundesgesetz über die Alters- und Hinterlassenenversicherung). As per 1.1.2005 the “Pension Index” reached 195.5 which yields a minimum pension of 1075 CHF.

> 12The last comprehensive poverty study in Switzerland dates back to 1992 (Leu et al. (1997)). It reports a poverty rate of 5.6 percent for the whole population, and of only 3.6 percent for people beyond the legal retirement age. Recent numbers suggest that the general picture has remained unchanged.