Demographic Changes and Economic Growth in Pension Systems: the case of Sweden

Abstract

Public pension schemes are by far the most important means in industrialized societies of distributing income and consumption throughout a lifetime, and of providing for old age when the ability to work is low or non-existent. Other chapters deal primarily with the question of how different pension systems will be affected by those demographic changes which are expected to occur up until the middle of the next century. The reason for focusing on demographic effects and excluding economic ones is that we expect the pension systems in operation today to be relatively insensitive to changes in economic growth. The majority of existing national pension systems are designed on a pay-as-you-go basis, a system in which one year’s contributions are used for the pension expenditures of the same year. As such they should theoretically be relatively unaffected by changes in economic conditions. This is not always the case, however, as details of the design may make them sensitive to economic growth. The Swedish system is one example of how certain features can lead to economic sensitivity. Countries with similar features within their systems cannot merely consider the question of how to deal with a future population, but must also analyze future economic scenarios. Therefore, an analysis of the Swedish pensions system is of interest to other countries as well.