speech embargo 31 october 2019, 4. 30 pm challenges confronting the pension system – options and limitations of monetary policy pk - netz conference thomas j. jordan∗ chairman of the governing board swiss national bank berne, 31 october 2019 © swiss national bank, zurich, 2019 ( speech given in german ) ∗ the speaker would like to thank nicolas cuche - curti, peter kuster and inske pirschel for their support in drafting this speech. he also thanks claudia aebersold szalay, simone auer, carlos lenz, susanne muhlemann and alexander perruchoud as well as snb language services. page 1 / 8 ladies and gentlemen i am delighted to be able to talk to you at this important event. it gives me the opportunity to explain our position in what is a difficult financial market environment for you especially as pension fund managers. the swiss national bank ( snb ) is responsible for our country ’ s monetary policy and not for its social policies, nor for its pension schemes. at the same time, however, it is important for us as the central bank that the occupational pension system should be able to fulfil its constitutional mandate : together with pillar 1 – the old age and survivors ’ insurance scheme ( ahv ) – it is required to ensure that insured persons can maintain their previous lifestyle in an appropriate manner after retirement. solid funding is crucial for this, as a pension system must be financially sound if the population is to have confidence in it. such confidence is, in its turn, of fundamental importance in ensuring that the occupational pension system can perform its key economic role. this consists of giving people the certainty that the assets they have saved in their pension scheme during their working lives will actually be available to them in their old age. a good pension system makes it possible for people to reliably plan their future material needs, and fosters security for individuals and stability for society. it is therefore a key precondition for the prosperity and development of a modern economy. a healthy pension system is central to ensuring social cohesion and is one of the cornerstones of switzerland ’ s success. with its three pillars – ahv, occupational pension schemes and private pension provision – switzerland has for several decades operated a comprehensive and well - functioning pension system. our pension arrangements have been envied abroad, which is also reflected in the relevant rankings. in recent years, however, our country has lost considerable ground in this discipline (

small open economy. with the negative interest rate, we can ensure that the traditional interest rate differential versus other countries is not eroded excessively. any further narrowing of the interest rate differential other hypotheses relating to the fall in the real interest rate are discussed in the economic literature. however, they are likely to provide less of an explanation than the factors of ageing and declining productivity growth. the adjusted method for calculating the exemption threshold takes effect on 1 november. the income the snb earns from negative interest is currently expected to almost halve. page 4 / 8 would increase the upward pressure on the franc, which would lead to lower economic growth and higher unemployment. the measures taken by the central banks to combat the financial and economic crisis – low policy rates, forward guidance on the expected course of short - term interest rates, and securities purchases – have undoubtedly increased downward pressure on the general level of interest rates in the short and medium term. but the decline in capital market rates, which we saw in the chart earlier, began long before the outbreak of the crisis. this reinforces the notion that when interest rates fall, it is the aforementioned powerful structural drivers which are at work – i. e. persistently lower inflation expectations, greater propensity to save and lower propensity to invest. from today ’ s perspective, therefore, the neutral interest rate that is relevant for monetary policy is also below previous empirical levels. consequently, shortterm interest rates could remain below their usual levels even if the central banks normalise monetary policy again at some point in the future. longer life expectancy – success story and challenge ladies and gentlemen, the low interest rate environment is a challenging situation for pension funds. and i cannot even give you an idea of when switzerland will be able to return to positive interest rates. all i can say is that the timing will greatly depend on developments in the global economy and the performance of the international financial markets. another challenge that is sure to preoccupy you as pension fund managers is that of rising life expectancy – on the face of it a very gratifying development and, indeed, one of humanity ’ s success stories. rising life expectancy is not only influencing the propensity to save but is also having a direct impact on the pension funds. given an unchanged retirement age, it steadily lengthens the average duration of pension payments. this in turn results in higher payments and extra strain on the pension funds. the consequences of these developments