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Pension Reform in the Nordic Countries A Model for the Other EU Member States? Arne Paulsson SIA Sweden CICERO FOUNDATION SEMINAR PARIS - 11 MAY 2007.

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Presentation on theme: "Pension Reform in the Nordic Countries A Model for the Other EU Member States? Arne Paulsson SIA Sweden CICERO FOUNDATION SEMINAR PARIS - 11 MAY 2007."— Presentation transcript:

1 Pension Reform in the Nordic Countries A Model for the Other EU Member States? Arne Paulsson SIA Sweden CICERO FOUNDATION SEMINAR PARIS - 11 MAY 2007

2 What´s common for Nordic Pension Systems Basic Security – guaranteed by the State Earningsrelated supplements Means-tested support for the poor Universal benefits Individual rights

3 Different Designs Sweden Basic security and mandatory Norway earningsrelated supplement by Finland public law Denmark Basic security by public law and Iceland earningsrelated supplement by occupational systems

4 Recent Pension Reforms in Sweden Finland Norway Finacially stable Pension System to meet the future demographic and economic conditions Politically stable Pension System by a broad political support in the Parliament

5 Swedish Reform – time schedule Pension Comission Working Group on Pensions 1994New System approved in Parliament 1998Final Legislation approved 1999New System comes into force 2003New System fully implemented

6 Defined Contributions – NDC 16% (Pay-as-you-go) – FDC 2,5% (Funded) Lifetime earnings Rate of return – NDC: wage index – FDC: financial market Main Features of the Swedish Pension System

7 Benefits based on life expectancy at retirement NDC – automatic balancing Transitional rules Guarantee pension – basic protection (general tax financed) Main Features of the Swedish Pension System

8 Every contribution give corresponding pension credit, the whole life 16 % Pay-as-you-go Funded 2,5 % Pensionable income SEK

9 Pension rights Pensionable earnings – wages – social insurance benefits Pensionable amounts –children under 4 years –disability pension –higher studies –military service

10 NDC Account Year Account Value 1/1 Pension Rights Survivors Bonus Index- ation Adm. Costs Account Value 31/

11 Annuity = Annuity calculation NDC Account value at retirement Annuitization divisor Annuitization divisor is calculated from unisex life expectancy at retirement age and an interest rate of 1,6 %

12 Retirement From the age of 61 NDC-pension, FDC-pension or both 25%, 50%, 75% or 100% of benefit

13 ..interest 1,6 % Growth 1,6 % Imputed interest 0,0 % Growth 1,6 % PENSION FIXED PRICES AGE Pension as an annuity

14 Norway Pension rights accrued by 1,35 % of earnings annually Lifetime earnings count Pension rights indexed by wages Retirement age 62 – Life expectancy affects pensions Pensions indexed 50/50 by prices/wages

15 Finland Pension rights accrued by 1,5 %(age 18-52), 1,9 %(age 53-62) and 4,5 %(age 63-68) Pension rights indexed 20/80 by prices/wages Retirement age 63 – 68 Life expectancy affects pensions Pensions indexed 80/20 by prices/wages

16 Effect from forecasted increase in life expectancy Cohort born.. turns 65 year Forecasted divisor (at 65) Effect on pension, relative to cohort born 1940 Required delay of retirement age to offset effect of increase in divisor % + 5 months % + 9 months % + 13 months % + 16 months % + 20 months % + 23 months % + 26 months % + 28 months % + 29 months % + 30 months

17 For those born Försäkringskassan och Riksförsäkringsverket

18 Guarantee pensions Basic security for those with low or no income-related pension Income-related pension Income related + guarantee Income-related pension Guarantee Income-related pension Income related + guarantee Income-related pension Guarantee

19 Balanstalet Balance ratio Pension Liabilities Contributions AssetFund + =

20 Time is money... Payments In average year 2000: 43 years age76 years age age Contributions Wait… 33 years Contributions Payments age

21 Exp. turnover duration contributions The present value of contribution flow, i.e. the contribution asset, is calculated as:

22 Fund 550 mdr. SEK The Balance Sheet in 2003 Pension Liabilities mdr. SEK Contribution Asset mdr. SEK Fund 577 mdr. SEK Balance Ratio =

23 Income index Balance index slower indexation faster indexation Year Income and balance index

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31 Key Figures Billions of SEK Buffer Fund Contribution Assets Total Assets Pension Liabilities Surplus Balance Ratio1,01491,00441,00141,00971,0105

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33 To learn from the Nordic Countries Broad political support Tight connection between earnings and benefits Lifetime earnings Pensions affected by life expectancy Flexible retirement

34 Thank you for your attention For more information


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