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The Swedish pension reform model : framework and issues

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  • Palmer, Edward
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    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.

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    Bibliographic Info

    Paper provided by The World Bank in its series Social Protection Discussion Papers with number 23086.

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    Date of creation: 30 Jun 2000
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    Handle: RePEc:wbk:hdnspu:23086

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    Related research

    Keywords: Pensions&Retirement Systems; Health Monitoring&Evaluation; Information Technology; Youth and Governance; Banks&Banking Reform;

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    Cited by:
    1. Axel Börsch-Supan & Barbara Berkel, 2004. "Pension Reform in Germany: The Impact on Retirement Decisions," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 04062, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    2. John B. Williamson, 2001. "Future Prospects for Notional Defined Contribution Schemes," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 2(4), pages 19-24, October.
    3. Kruse, Agneta & Nyberg, Kristian, 2004. "Pensions and external effects of ageing; effects on distribution," Working Papers, Lund University, Department of Economics 2004:27, Lund University, Department of Economics.
    4. Axel Börsch-Supan, 2003. "What are NDC Pension Systems? What Do They Bring to Reform Strategies?," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 03042, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    5. Massimo Angrisani & Cinzia Di Palo, 2011. "A Necessary Sustainability Condition for partially Funded Pension Systems," MIC 2011: Managing Sustainability? Proceedings of the 12th International Conference, Portorož, 23–26 November 2011 [Selected Papers], University of Primorska, Faculty of Management Koper, University of Primorska, Faculty of Management Koper.
    6. Barbara Berkel & Axel Börsch-Supan, 2003. "Renteneintrittsentscheidungen in Deutschland: Langfristige Auswirkungen verschiedener Reformoptionen," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 03031, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    7. Christina Benita Wilke, 2008. "On the feasibility of notional defined contribution systems: The German case," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 08165, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    8. Alan J. Auerbach & Ronald Lee, 2006. "Notional Defined Contribution Pension Systems in a Stochastic Context: Design and Stability," NBER Working Papers 12805, National Bureau of Economic Research, Inc.
    9. Alan Walker & Liam Foster, 2006. "Caught between virtue and ideological necessity. A century of pension policies in the UK," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 18(3), pages 427-448.
    10. Markus Knell, 2005. "On the Design of Sustainable and Fair PAYG Pension Systems When Cohort Sizes Change," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 95, Oesterreichische Nationalbank (Austrian Central Bank).
    11. Axel Borsch-Supan & Barbara Berkel, 2003. "Pension Reform in Germany: The Impact on Retirement Decisions," NBER Working Papers 9913, National Bureau of Economic Research, Inc.
    12. Axel Börsch-Supan, 2004. "From Traditional DB to Notional DC Systems," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 04063, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    13. Friedrich Fritzer, 2004. "Financial Market Structure and Economic Growth: A Cross-Country Perspective," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 72–87.
    14. Barbara Berkel & Axel Börsch-Supan, 2003. "Pension Reform in Germany: The Impact on Retirement Decisions," MEA discussion paper series, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy 03036, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    15. Vittas, Dimitri, 2002. "Policies to promote saving for retirement : a synthetic overview," Policy Research Working Paper Series, The World Bank 2801, The World Bank.
    16. Markus Knell, 2005. "Demographic Fluctuations, Sustainability Factors and Integenerational Fairness – An Assessment of Austria's New Pension System," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 23–42.
    17. Robert Holzmann & Richard Hinz, 2005. "Old Age Income Support in the 21st century: An International Perspective on Pension Systems and Reform," World Bank Publications, The World Bank, number 7336, August.

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