The Swedish Experience with Pension Reform
Posted: 29 Feb 2008
Sweden is one of few countries in Europe to have introduced a comprehensive pension reform. In 1998, Sweden passed legislation that transformed its public pension system to a notional defined-contribution (NDC) plan - that is, a defined-contribution plan financed on a pay-as-you-go basis. In addition, a second tier of funded individual accounts was introduced. The reform had broad political support with more than 80 percent of the votes in parliament. This paper discusses the trends in retirement in Sweden and assesses the experience with pension reform. The objective was to design a fiscally sustainable system tied to economic growth with a clear link between contributions and benefits. We discuss the challenges in meeting this goal, the extent to which the Swedish reform has succeeded, and how the system affects beneficiaries. The paper evaluates the experience of the individual funded accounts to date and concludes with an outlook for the future.
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