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The Swedish pension reform model : framework and issues

Author

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  • Palmer, Edward

Abstract

This paper describes the recent Swedish reform, and available options on major issues within this reform framework. In June 1994, Sweden's Parliament passed legislation replacing the old defined benefit system, with a combination of pay-as-you-go notional defined contribution (NDC), and a DC privately managed financial account scheme, based on a total contribution rate of 18.5 percent on earnings. The financial account scheme will have a state monopoly supplier of annuities, and, participants can choose, when they make their first choice in the autumn of 2000. If the NDC, and financial account schemes do not reach a minimum level by age 65, and the individual chooses to retire at this age, benefits from these systems will be supplemented up to the guarantee level, determined by Parliament, and financed with a state budget transfer. Life expectancy is factored into the NDC annuity, and together with the financial account system, this innovation helps to shift the risk of an aging society onto workers, while they are still active. There is no maximum retirements age, and the system offers a broad range of options for labor-force exit for older workers. Full, partial, or no earnings from work, can be combined freely with full, or partial annuities from one, or both of the public schemes from the minimum pension age of 61.

Suggested Citation

  • Palmer, Edward, 2000. "The Swedish pension reform model : framework and issues," Social Protection Discussion Papers and Notes 23086, The World Bank.
    • Handle: RePEc:wbk:hdnspu:23086
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