The Swedish NDC Scheme: Success on Track with Room for Reflection

Abstract

This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Sweden: Adjoining the Guarantee Pension with NDC

“…Although greater coverage of occupational pensions would probably reduce some of the differences in old-age incomes, tax reforms could potentially bring down inequalities even further. Whereas the differential tax treatment of work and pension income will most likely disappear in the near future, there is no serious political discussion about changes in the tax treatment of capital income, or reforms to make occupational pensions compulsory, as suggested by Palmer and Könberg (2019). In Sweden, the latter is generally considered to be outside the scope of political decision making, and instead subject to negotiations between the social partners.…”

Does the pension system’s income statement really matter? A proposal for an NDC scheme with disability and minimum pension benefits

“…Nevertheless, from the point of view of the fair presentation of the financial statements, it cannot be considered appropriate that the Swedish authorities should ignore any change in this item. According to Palmer and K€ onberg (2019), during 2002-2017 real income per capita grew at an average rate of 2.1 per cent, i.e. 0.5 per cent per year higher than the 1.6 per cent applied in the actuarial factor used for computing the liability to pensioners.…”

Does the Pension System’s Income Statement Really Matter? A Proposal for An NDC Scheme with Disability and Minimum Pension Benefits

“…On the other hand, ignoring a change in this item by the Swedish authorities cannot be considered as appropriate from a fair presentation of the financial statements point of view. According to Palmer and Könberg (2019), during 2002-2017 real income growth per capita grew at an average rate of 2.1 percent, i.e., 0.5 percent per year above the 1.6 percent applied in the actuarial factor used for computing the liability to pensioners. If the annual real income growth rate had to be used to calculate liabilities to pensioners, the net worth changes originally estimated would have been (very) different from those reported by the Swedish authorities; and what is more important, the ABM would not necessarily have been activated and/or the timing of triggering would have been different.…”

“…To receive a full guaranteed pension, an individual must have resided in Sweden for 40 years after the age of 25, however residence in another EU/EEA country can also be credited towards a guaranteed pension. The Swedish guarantee begins with a floor, above which it tapers off as it is means tested against the public NDC and FDC pensions (Palmer and Könberg, 2019). The guaranteed pension is financed by the tax revenue from the central-government budget and is therefore not included in the income statement and balance sheet of the pension system (TSPS, 2018).…”

“…The papers byQi et al, (2018) andPalmer and Könberg (2019), to name just a couple, as well as TSPS (2018), are good sources for the interested reader in the real aspects of the NDC Swedish pension system: the financial stability, factors influencing the adequacy of benefits, and its interplay with other components of the pension system or its effect on prolonging the working life of the affiliates. 9 PAYG systems bear a fundamental risk related to the demographic variable "new entrants" and to their future contribution capacity(Melis and Trudda, 2012).…”