Social Security Reform in Advanced Countries: Evaluating Pension Finance

By Toshihiro Ihori; Toshiaki Tachibanaki | Go to book overview

10

Pension systems and labor force participation in the Nordic countries

Fredrik Haugen, Erik Hernæs, and Steinar Strøm


10.1Introduction

This chapter gives an overview of the structure of the pension systems in Denmark, Finland, Norway and Sweden, and the most important of the recent changes in these systems. In all the Nordic countries, the public pension component plays an important role. These public pension systems are of pay-as-you-go type, and are in all countries set to encounter financial problems in the not so distant future. Some recent changes aimed at meeting this problem are described, but the chapter includes no discussion of the financial situation of the public pension systems. The emphasis in the chapter is on the institutional arrangements and the ensuing labor supply incentives for older persons. The chapter also includes a brief overview of labor force participation of older persons in the Nordic countries.

The situation in Norway has been treated most extensively. For Norway, we also recount the results of two recent analyses of the impact of an early retirement system, which was introduced in 1989.


10.2Institutional aspects

10.2.1Norway

10.2.1.1History

In 1937, the first mandatory old age pension insurance was implemented in Norway. The system was universal in the sense that everyone was included. It was restricted to persons with relatively low income. The age of eligibility was set to 70 years. In 1957 the means testing was lifted and co-ordination with government pensions introduced. An earnings based component was added to the basic pension in 1967 and the age of eligibility was lowered to 67 years.

Pensions are financed through taxes levied on employers and employees as percentages of total earnings and on the self-employed as a

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