The Swedish pension system after twenty years

Abstract

Elements of the Swedish pension reform enacted in the 1990s have served as a model for reform initiatives in a number of other countries. Sweden’s experience suggests that a Notional Defined Contribution (NDC) pension reform can be sustained in a supportive political environment, but it has not been immune to electoral pressures to prevent visible cuts in pension benefits. Moreover, efforts to lengthen working lives have encountered major barriers both in the way that the state pension system is perceived and in the structure of the occupational pension system. Design of Sweden’s individual account tier has major successes in lowering administrative costs and in providing information across sources of retirement income, but efforts to increase active engagement in selecting retirement savings portfolios have faltered. Sweden has modified its new pension system in several ways over the past decade to address perceived problems and political concerns, and debates are now arising on a Reform 2.0 package of more comprehensive changes. JEL classification: H5, H55. Keywords: Pension reform, pension system, income contribution, retirement, stabilising mechanisms.