Academic journal article Social Security Bulletin

Far-Reaching Social Security Pension Reform Proposed in Sweden

Academic journal article Social Security Bulletin

Far-Reaching Social Security Pension Reform Proposed in Sweden

Article excerpt

A committee of experts, representing major parties in the Swedish parliament, recently submitted a proposed to drastically change the current social security program. The aim of the new pension system is to strengthen the program so that it will be able to withstand demographic changes such as an aging population expected in Sweden during the period 2000-2020.

Sweden currently has a double-decker social security system made up of a basic pension and an earnings-related pension. This will be substantially modified. There will continue to be a basic pension financed through taxes. For persons living in Sweden for 40 years or more, the basic pension for a single person without pension rights will amount to a minimum of 2.1 "base amounts" (SKr73,920--approximately US$9,400) on the basis of the 1994 base amount. This amount will be proportionally reduced for those living in Sweden for shorter periods. The comparable basic pension in the current system is SKr53,800 (US$6,850).

In addition, the new system proposes that, beginning in 1995, the employer and the employee will share the cost of the earnings-related pension. Currently, employees do not contribute. The employer and employee each will contribute an initial 1.25 percent of the worker's salary, thereafter increasing gradually each year up to 9.25 percent in the year 2000. After the year 2000, two percentage points of the 9.25 percent contributed by the worker will be transferred to the worker, to be used at his or her discretion; the remaining 7.25 percent will be added to the worker's account.

The pension of the future will build on lifetime earnings, starting as early as age 16 and continuing until the individual decides to retire; In contrast, under the current system 30 years' participation is needed to receive a full pension, with the pension amount based on the 15 best years. Wages and other pension-producing earnings will determine the size of the pension, which will be based on earnings that have been indexed by a salary index rather than the current consumer price index. In order to establish pension rights for a year, a person will have to earn the equivalent of at least one-quarter of a base amount during that year (in 1994, SKr8,800--US$1,115). …

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