Sweden has a long tradition of social insurance.1 Indeed, it was the first
nation to implement a mandatory government retirement system for
Nevertheless, Sweden is now one of the world's leaders in the
global shift to private pension systems.
The Swedish pension program faced financial problems similar to
the troubles plaguing the U.S. Social Security system, and the
Swedes decided that partial privatization was the best solution.
For Americans, the Swedish example shows that pension reform and
privatization are sound solutions to a pressing problem.
In Sweden, pension reform occurred because policymakers from
both sides of the political spectrum realized that reform was the
only way to ensure a safe and comfortable retirement income for
today's workers. During the 1980s, Swedish lawmakers became
increasingly aware that the country's National Basic Pension and
National Supplementary Pension were not well adapted to meet future
challenges. After reviewing the possible options for reform,
including the recommendations of a committee appointed in 1992 to
study the issue, Swedish policymakers decided that both individual
workers and the overall economy would benefit if the old-age system
were partially privatized.
The Swedish parliament, the Riksdag, reached an agreement to
reform the system in 1994 and approved implementing legislation in
1998. The new system, which is fully effective for all workers born
in 1954 or later, has four key features:
Workers must put 18.5 percent of their income aside for retirement,
but they are now able to invest 2.5 percentage points of that
amount in an individual account. Beginning later this year, workers
will be able to choose the pension fund that best suits their
Individual accounts. The
remaining amount, 16 percentage points, is a tax that funds the
pay-as-you-go government program. The Riksdag also altered this
portion of the system dramatically. Instead of providing a
pre-determined retirement benefit based on number of years in the
workforce and earnings history, the new system provides benefits
based on the amount of taxes paid during the worker's career. By
creating a system of notional accounts (no money is actually
deposited) and linking retirement benefits to lifetime income, the
parliament has set the stage for further privatization.
Safety net to protect the
poor. As in other nations that have shifted to personal
retirement accounts, a safety net will exist under the new Swedish
pension system. The government will continue to guarantee a minimum
pension funded by general tax revenues.
- Transition to protect retirees and older workers.
Although the old pension system no longer exists, current retirees
and older workers will continue to receive all or some of their
retirement income based on the rules that existed before reform.
Individuals born before 1938, for instance, will receive all the
benefits promised by the old system. Retirement income for those
born between 1938 and 1953 will come from a combination of the new
and old systems.
Sweden's reformed pension system will yield substantial benefits
for workers, retirees, and the Swedish economy. The key benefits
Budgetary savings. Partial
privatization, combined with reform of the government-run,
pay-as-you-go portion of the retirement system, is expected to
result in a fiscally sustainable system. Future expenditures will
be significantly lower, protecting Swedes from higher taxes, higher
spending, and large deficits.
Higher retirement income. The
ability to invest privately over a working lifetime will allow
Swedish workers to benefit from compounding returns. The average
blue-collar worker, for instance, should enjoy 40 percent more
old-age income. Swedish retirees will have a safer and more
- Economic growth. By reducing the payroll tax rate and
creating a direct link between lifetime income and pension
benefits, Swedish pension reform will increase incentives to work.
Moreover, the shift to a funded system will boost national savings,
thus providing capital for future growth.
THE NEED FOR REFORM
All industrialized nations are confronted by the same challenge:
Their tax-and-transfer pension programs face serious demographic
and financial pressures. In effect, policymakers have only two
choices. On the one hand, they can raise taxes and cut benefits in
an effort to prolong the solvency of government-run old-age
systems. Alternatively, they can give workers private retirement
accounts. Faced with this choice, Sweden decided that reform was
the best option.
Why did Sweden's lawmakers decide that they had to reform the
Swedish old-age pension system? Among the key factors were:
Long-term deficit. The
unfunded pension system liability in 1996 was nearly $500 billion,
roughly equal to 200 percent of Sweden's economic output.
Demographics. In 1950, there
were more than five working-age people for each person over age 65.
Now there are fewer than four, and the ratio eventually will drop
to three working-age people per retiree.3
Future tax increases.
Payroll tax rates already were high-nearly 20
percent-but they would have had to rise even more to keep the
existing system in balance. According to Swedish government
estimates, the tax rate would have needed to be as high as 36
percent by 2025.4
Economic impact. The system's
high tax rates discouraged output and employment. The adverse
effect on work incentives was particularly severe because of a weak
relationship between the taxes workers paid into the system and the
benefits they expected to receive. In other words, workers had an
incentive to work less and to underreport their income since
increased pay simply meant higher taxes without an accompanying
increase in future pension benefits.
- Fairness. Pension benefits for retirees often varied
greatly. Because old-age benefits were based on a worker's 15
highest-earning years, two Swedes with equal lifetime incomes who
had paid equal amounts of taxes could receive very different
pension benefits. This formula discriminated in favor of
higher-paid white-collar workers with peak-earning years at the
expense of blue-collar workers with relatively stable
The Old System
Sweden's former pension system (which still determines benefits
for older workers and retirees) was a tax-financed, pay-as-you-go
entitlement program, similar to the United States' Social Security
program. The system had two components. The first part was the
basic pension (FP), which was available to everyone regardless of
contributions paid. The basic pension provided about $4,000 of
annual income for a single retiree (SEK 34,944) and about $6,500 of
annual income for a married couple (SEK 57,148).1
In addition, a second, earnings-related supplementary pension
(ATP) was available. Similar to the U.S. Social Security program,
the supplementary pension provided old-age benefits linked to each
worker's earnings history. The maximum supplementary pension was
about $16,000, but the average retiree received less than
To finance these benefits, the government imposed two separate
payroll taxes on workers: a tax of nearly 6 percent for the basic
benefit and a tax of 13 percent for the earnings-related portion of
the program. The government also used general revenues to help
finance the basic benefit.
Like the American system, the Swedish system has a trust fund
that is supposed to invest surplus payroll taxes in order to pay
benefits when the baby-boom generation retires. As in America, some
of these assets are illusory, consisting of government bonds that
can be redeemed only by collecting additional taxes from the public
in the future. A significant portion of the Swedish trust fund,
however, is comprised of private-sector assets.2
1. For workers with no supplementary
pension, a means-tested income supplement is available. This
effectively means that the minimum pension for a single retiree is
about $7,000. See Sweden: Selected Issues, IMF Staff
Country Report No. 98/124, November 1998.
2. For an analysis of the risks of
government-controlled investment, see Daniel J. Mitchell, "Why
Government-Controlled Investment Would Undermine Retirement
Security," Heritage Foundation Backgrounder No. 1248,
February 5, 1999.
THE NEW PENSION SYSTEM5
Under the new Swedish old-age pension system, each worker's
future pension will be based on the amount of money accumulated in
two separate individual accounts. The bulk of retirement
income-although this may change if further privatization
occurs-will come from a notional account maintained by the
government on behalf of the individual. A significant portion of
retirement income, however, will come from a completely private
The overall contribution rate is 18.5 percent, which is slightly
below the tax burden for the old system. The 18.5 percent is split
equally between employer and employee, with each paying 9.25
percent on "pension basing income" into the system.6 This money is then
divided, albeit unevenly, between the government-maintained account
and the private account.
The Notional Individual Account
Of the individual's 18.5 percent payroll taxes, the larger
part-16 percent of payroll-goes to the government portion of the
program. As is the case with pay-as-you-go systems, the money is
used to fund benefits for existing retirees.
What makes the government pay-as-you-go portion of the pension
program unique, however, is the formula used for calculating an
individual's future retirement benefits. Each worker's 16 percent
payroll tax is credited to an individual account, although the
accounts are notional. These imaginary accounts are credited each
year with "earnings" based on Sweden's per capita wage
at age 61, a worker can retire, and the government uses the money
in these notional accounts to calculate an annuity (annual
retirement benefit) for the worker.
It is important to note that, because the calculations are based on
life expectancy, the longer a worker stays in the workforce, the
larger the annuity received. This reform is expected to discourage
workers from retiring early, a common occurrence in Sweden that
burdened the retirement system. Table 1
shows the pension
penalty that workers face for retiring early, and the bonus they
receive for retiring later in life.
The new pension system will adjust retirement benefits for
inflation, although the adjustment may vary according to real wage
growth.8 This provision creates a
direct link between the growth of labor force income and the taxes
paid on that income, and the benefits paid to retirees. This
ensures that the system is financially sustainable.
Other interesting features of the notional portion of the
Swedish system include the following:
The notional accounts will be
charged a modest administrative fee to cover the government's cost
of running the program.
Account balances are not
transferable to heirs.
Workers who leave the workforce to
care for children are credited with contributions to their
The full tax is imposed on all
income up to about $30,000 (SEK 273,000). Above that amount, the
government collects only the employer share of the tax. The revenue
generated by this extra employer tax, however, is not credited to
the worker's account.
- The notional accounts include more than just the taxes paid
since pension reform was implemented in 1999. Instead, the
government used historical data dating back to 1960 to construct
The Private Individual Account
Of the individual's 18.5 percent payroll taxes, the smaller
share-2.5 percent of payroll-goes into an individual
account.10 This is the "funded" part
of the system, meaning that the money is invested in real assets
that can then be sold to generate income during retirement. Upon
retirement, the nest egg that accumulates in this account will be
converted into an annuity.
The government has set up a centralized agency, the Premium
Pension Agency (PPA), to oversee the record-keeping for this new
system. Beginning later this year or early next year, as soon as
the start-up phase is complete, workers will be able to invest
their retirement monies in as many as five funds.11 In the interim, the PPA is investing the
money that has been collected in low-risk assets.
Interesting features of the funded portion of the Swedish system
include the following:
The system has been structured to
discourage funds with high administrative fees.
Workers can choose survivor's
insurance that will provide income to heirs in the case of early
The private pension funds must
follow prudent principles and are largely free of intrusive
- Workers will be able to switch funds but will be charged an
annual administrative fee to do so.
Simultaneous Reform of Private-Sector
Nearly all Swedish workers are also covered by an occupationally
based private pension plan. Prior to the pension reform, these were
defined benefit plans promising workers a modest pension based on
earnings histories. With the exception of the pension plan for
government workers, however, almost all of these plans are
switching to a defined contribution format that is similar to the
privatized portion of the government program. Under the new
arrangement, workers can invest 2.0 percent-4.5 percent of their
earnings in an individual account.12
The combination of these occupational plans and the privatized
portion of the government system means workers will be able to save
4.5 percent-7.0 percent of their income in personal accounts for
retirement. This level of mandatory individual retirement savings
is significant by world standards.
The Safety Net
Because of low wages and interrupted work history, some workers
earn modest incomes during their careers. Many of these workers
will reach retirement with small private retirement accounts and
notional accounts. To ensure that pension reform does not adversely
affect these people, the new pension system guarantees an adequate
old-age income for all Swedes.
For a single retiree, the guaranteed pension is about $9,000 per
year. A married couple, meanwhile, receives about $16,000. This
means-tested benefit is phased out according to the income
available from the notional account and the private account. The
means-testing rules that govern the guaranteed pension are
relatively generous, to the extent that about 40 percent of workers
are projected to receive at least some income from the safety net
Gradual Transition to the New
The new system does not affect individuals born before 1938, and
the old system does not affect individuals born after 1953. People
born between 1938 and 1953 (inclusive), however, receive a mix of
benefits, as shown in Table
2. A person born in 1948, for example, will receive 70 percent
of his pension from the new system.
While the new system is financially self-sufficient in the long
term, a transition period is necessary for smooth implementation.
During this time, the government will finance benefits for current
retirees and older workers about to retire using two sources of
revenue. The major revenue source will be the 16 percent payroll
tax. This tax will fund most of the pay-as-you-go obligations of
the old system and all of the pay-as-you-go obligations of the new
The second source of revenue will be the assets in the trust
fund. The trust fund currently comprises about 750 billion Kronor,
a nest egg equal to nearly 40 percent of Sweden's gross domestic
product (GDP). In years when benefit payments exceed tax revenues,
a portion of these trust fund assets will be sold and the proceeds
used to make up the difference. As shown in Chart 1, most of the
assets in the trust fund represent real investments, although the
trust fund also contains government bonds. These bonds mean that
general tax revenues will pay for a portion of future benefits at
the time when the bonds are redeemed.
BENEFITS OF THE NEW SYSTEM
Swedish pension reform is not as sweeping as the reforms that
have taken place in such countries as Australia and Chile, but the
changes are noteworthy and beneficial. The new system provides:
Greater incentive to work. In
the new system, pensions are determined by lifetime income, which
means that each year of gainful employment will have a positive
impact on future pension benefits. Because pension rights will be
recorded in real and notional individual accounts, workers will
have much less reason to hide, shelter, and underreport their
income. The new system will also discourage workers from dropping
out of the labor force.
Increased national savings.
Replacing a tax-and-transfer entitlement system with a partially
funded pension system will increase national savings, particularly
as the new system matures. Some recent empirical evidence from
Swedish household sector data, for instance, indicates that reform
will result in a net increase in savings.14
Flexible retirement age. The
new system neither penalizes nor rewards early retirement. Workers
can retire as early as age 61 or stay in the workforce as long as
they choose. Early retirement no longer burdens taxpayers since
workers who choose to retire early do so in exchange for a smaller
pension. Moreover, the new system does not penalize workers who
remain in the workforce since they receive a larger pension or, if
they so choose, earn income and collect a smaller pension at the
same time. These benefits are possible because a worker's notional
account becomes an annuity based on life expectancy at the time of
retirement. Since the annuities do not reflect differences in life
expectancies for men and women, however, women receive more from
the new system than men.
Lower taxes and less government
spending. The new pension system will yield large fiscal
benefits over time. The Swedish government calculated that the
payroll tax rate necessary in order to perpetuate the old system
would have reached 36 percent by 2025. This tax rate- and the level
of government spending implied by such a tax burden-would have been
an enormous weight on the Swedish economy. Even the 16 percent tax
in the new system is too high, though the creation of notional
accounts minimizes the adverse impact on labor supply. Chart 2 shows how reform will
result in less government spending.
Opportunity for more reform.
In addition to partial privatization, the Swedish reform replaced a
pay-as-you-go defined benefit (an annual old-age payment loosely
determined by work history) with a defined contribution notional
account. The system thus no longer implicitly redistributes income
from one type of worker to another.15
Consequently, no demographic group will have a reason to oppose
further privatization. Indeed, all demographic groups will have an
incentive to support additional reform since private investments
earn a higher return than the nominal interest that the government
credits to the notional accounts. The only remaining obstacle to
further privatization is the difficulty of handling the transition
to private accounts, or how to match the short-term loss of tax
revenue with the long-term budgetary savings.
Fairness. The old system
allowed some employees, particularly white-collar workers with
limited periods of high earnings, to obtain disproportionately
large pension benefits. No concept of fairness justifies this
reverse income redistribution from the poor to the rich. The new
system, in contrast, closely links pension benefits with lifetime
earnings. The hidden redistribution of the old system has been
replaced by a much more straightforward safety net program that
will ensure that all retirees have adequate income.
- More retirement income. Last but not least, the new
system allows workers to retire with more income. Table 3 shows the benefits that
a Swede who began working in 1960 and retires in 2009 will
receive.16 As the table shows,
retirees will have substantially more income thanks to the new
system. It is interesting to note that retirement income for
blue-collar workers increases more rapidly than retirement income
for white-collar workers. This change is due primarily to the fact
that blue-collar workers are in the workforce longer and can take
advantage of longer periods of compound returns-a benefit that did
not exist in the old system.
THE NEXT STEP
Swedish pension reform has had broad support throughout the
country. Indeed, it is so popular that most observers believe that
it is only a matter of time before lawmakers increase the amount of
money that Swedes can put in private accounts.
Such a change would further improve the Swedish pension system.
Table 4 shows the pension
benefits a worker who began working in 1960 and retired in 2009
will receive under the new system?and under a hypothetical
completely privatized system. Income would be much greater in the
fully funded system because of higher returns on investments. More
specifically, the return on money in the notional account is linked
to per capita wage growth, while the return on the money in the
private retirement accounts should reflect the long-run return to
Other reasons for further privatization also exist; in
particular, additional reform would increase national savings and
decrease future budgetary costs. Furthermore, pension reform may
serve as a guide for reforming other government programs in Sweden.
A system of education accounts exists within a few private
companies in Sweden, and the legislature is currently considering a
national program based on this model. Savings accounts for
unemployment insurance are also under discussion, as are
comprehensive individual savings accounts to replace the current
system of social insurance.
In the spirit of privatization, the Confederation of Swedish
Employers has presented a plan for discussion that combines a
system of basic security accounts with a national flat tax.17 Such a system would sharply reduce tax
rates, strengthen the economy, provide freedom of choice with
respect to social insurance, and improve the welfare of most
LESSONS FOR THE UNITED STATES
Many nations, including Sweden, Australia, Chile, Great Britain,
Mexico, Poland, Hong Kong, Argentina, Hungary, and Kazakhstan, have
privatized their pension systems. From their experiences, Americans
can learn many lessons.
First, Americans can learn that reform works. As the
Swedish experience demonstrates, it is possible to change from a
pay-as-you-go entitlement scheme to a system of personal accounts.
In the case of Sweden, policymakers not only privatized a portion
of the system, but dramatically reshaped the part of the pension
program that remains under government control. As discussed above,
this will facilitate further reform.
Second, reform is popular. Notwithstanding Sweden?s
reputation as a cradle-to-grave welfare state, legislators from
across the political spectrum were able to unite in support of the
new system. These politicians wanted to create a more comfortable
and more secure retirement system?and for them, a better pension
system was not a partisan or ideological issue.
Swedish policymakers also deserve credit for the way in which
they dealt with the question of the retirement age. Under the new
program, workers can choose to retire at age 61 or can stay in the
workforce until age 70 or beyond. Because retirees receive less
retirement income when they retire early and more retirement income
when they retire later in life, there are no adverse consequences
Moreover, the new system does not force workers into an
all-or-nothing retirement decision. Workers can continue working
while receiving a pension. They can choose to receive a partial
pension (25 percent, 50 percent, or 75 percent of the amount they
would receive, depending on their age), a feature that is
particularly attractive to workers who wish to withdraw gradually
from the labor force.19 Once they
choose full retirement, of course, workers receive a recalculated
full pension according to their age and the size of their notional
Limitations of the Swedish Reform
While the Swedish experience confirms that personal retirement
accounts are good public policy, Sweden has not made a perfect
transition to the new system. Poor planning, for instance, has
stalled Sweden?s shift to personal accounts. As a result, the
individual accounts are not expected to be fully operational until
later this year. The government holds the money that has been
collected to date and is investing these funds in low-risk assets
until the individual accounts are ready. At that time, the
government will distribute all of the funds and accompanying
earnings to the appropriate personal account.
Two reasons exist for the delay. First, the government agency in
charge of implementing the new system, the Premium Pension Agency,
fell behind schedule in designing the contract that governs the
plan administrator. Second, the company that received the contract
underestimated the complexity of the task and did not prepare the
software on time.
While these glitches have delayed the full implementation of the
Swedish reform, however, they certainly do not suggest that reform
is either impractical or undesirable. Instead, Americans need to be
aware that those charged with implementing a new system must be
realistic about logistical and practical issues.
Furthermore, American legislators also should not permit the
Social Security Trust Fund to purchase private-sector assets as the
Swedish trust fund does. To be sure, the accumulation of real
assets by the Swedish fund makes it easier for the government to
finance promised benefits to older workers and current retirees. In
the future, instead of collecting more taxes from workers to make
up any difference between payroll tax revenues and old-age benefit
payments, the government will be able, at least in part, to sell
its stocks and private-sector bonds. In contrast, the U.S. Social
Security Trust Fund holds nothing but government bonds?IOUs that
the government can redeem only by collecting more money from
Although the real assets in the Swedish trust fund are a
benefit, these real assets are accompanied by risks. Politicians
control how the money in the trust fund is invested. Countries that
have government-controlled investment almost always succumb to the
temptation to invest money for political purposes.20 Sometimes politicians steer money toward
industries with good political connections, and sometimes they
steer it away from industries that are politically unpopular
(tobacco, fatty foods, guns, etc.). Regardless of motivation,
politically inspired investments harm workers by putting their
retirement funds at risk and harm the economy by misallocating
In any event, investing the Social Security Trust Fund is not
relevant to the U.S. privatization debate. Even if the money could
be protected from political mischief, accumulating real assets
would make sense only if the underlying goal was privatization at
some point in the future. Because of the looming retirement of the
baby-boom generation, American policymakers need to reform the
Social Security system as soon as possible. As a result, the
current Social Security surpluses should be used to help ensure
that the benefits of current retirees and older workers are fully
protected during the transition to a system of personal retirement
accounts. Indeed, the only lawmakers proposing to let the
government invest the Social Security surplus are those that are
opposed to reform.
Finally, U.S. lawmakers may not wish to copy Sweden?s approach
to retirement annuities. All workers must annuitize their
individual accounts, meaning that their nest eggs must be turned
into specific annual payments. This makes sense for workers with
modest accounts, particularly since one goal of the reform is to
ensure that every retiree has an adequate level of income
regardless of life expectancy. This approach, however, may be
unnecessary for workers with larger accounts. Instead, it might be
more appropriate to require these workers to "purchase" an annuity
guaranteeing them a certain level of income but then give them
flexibility over the disposition of the remaining funds in their
accounts. This is particularly true for the privatized portion of
A related problem is the existence of a government monopoly that
calculates the annuities. Legislators opted to create this monopoly
because they wanted to ensure that unisex life expectancies would
be used when calculating the annuities, which discriminates in
favor of longer-lived women.21 It
appears that the government has achieved its goal, but the creation
of a monopoly and the requirement that all retirees use one
approach will necessarily inhibit the development of new products
that may be attractive to consumers.
Sweden?s reputation as a cradle-to-grave welfare state would
lead many Americans to assume that it would be one of the last
nations to privatize its pension system. To the contrary, however,
Sweden has made significant and profound progress toward ensuring
the future of its retirement program.
In most nations, pension reform is not an ideological issue. The
Labor Party, for instance, privatized the pension system in
Australia. British privatization is most often associated with
Margaret Thatcher, but she merely built upon the reforms that a
Labour government had put in place.
Likewise, Swedish policymakers looked at their pension program?s
long-term numbers and realized that a partially funded system,
augmented by notional accounts for the government-run portion, was
necessary. Sweden?s reform will be good for workers, good for
taxpayers, and good for the Swedish economy.
Göran Normann, Ph.D., President
of Normann Economics International, based in Stockholm and Paris,
is an associate professor of economics at the University of Lund,
Sweden. He has worked with the Federation of Swedish Industries and
the Organisation for Economic Co-operation and Development (OECD).
J. Mitchell, Ph.D., is McKenna Senior Fellow in Political
Economy at The Heritage Foundation.
1. For more information, see Social Insurance in
Sweden, 1999, available at www.rfv.se/english/pdf/bokeng.pdf.
Additional information on the Swedish pension system may be found
at www.pension.nu , www.ppm.nu , www.saf.se, or www.rfv.se.
2. Marten Palme and Ingemar Svensson, "Social
Security, Occupational Pensions, and Retirement in Sweden,"
National Bureau of Economic Research Working Paper No. 6137,
4. Sweden Ministry of Health and Social Affairs,
The Pension Reform in Sweden Final Report, June 1998, at
The International Monetary Fund projected that the tax rate would
need to climb "only" to 26 percent, largely because it assumed the
economy would grow much faster?2 percent annually as compared to
the Swedish government?s 1 percent growth estimate. See Sweden:
Selected Issues, IMF Staff Country Report No. 98/124,
5. In addition to the government programs, most
Swedish workers have some type of employer-provided pension. The
employer-provided pension funds for private-sector workers are
pre-funded, while the supplementary pension schemes for
public-sector employees are largely unfunded. Many workers also
have some level of personal retirement savings. About 75 percent of
old-age income, however, comes from the government. See Edward
Whitehouse, "The Tax Treatment of Funded Pensions," World Bank
Social Protection Discussion Paper No. 9910, April 1999.
6. Labor economists widely agree that workers bear the
total burden of both payroll taxes and mandatory savings.
Politicians often require employers to pay some or all of such
levies, but the funds inevitably reduce total employee
7. Annika Sunden, "How Will Sweden?s New Pension
System Work?" Boston College Center for Retirement Research
Issue in Brief No. 3, March 2000.
8. The adjustments for inflation may be greater or
lesser than the inflation rate, depending on whether real wage
growth is higher or lower than 1.6 percent.
9. Edward Palmer, "The Swedish Pension Reform Model:
Framework and Issues," World Bank Social Protection Discussion
Paper, June 2000, available at
(accessed June 22, 2000).
10. Between 1995 and 1998, 2 percent of each worker?s
pensionable income was set aside and invested by the government.
This money will be transferred to the fund(s) selected by the
11. Workers that do not choose a fund will have their
money invested, by default, in a government fund that will be
weighted toward low-risk, low-return assets.
12. Palmer, "The Swedish Pension Reform Model:
Framework and Issues."
13. Sunden, "How Will Sweden?s New Pension System
14. Lennart Berg, Sparandets guldålder
(Stockholm: Merita Nordbanken, 2000).
15. Instead, income transfers will be handled in an
above-board fashion through the safety net guarantee pension.
16. It is assumed that workers invested the private
pension money equally in bonds and stocks in the premium pension
system. The rates of return used in this example are the actual
rates of return between 1960 and 1998. After 1998, the rates of
return are assumed to be 1 percentage point below the average for
the 1960?1998 period.
17. Göran Normann et al., Matching
Flat Tax with Basic Security Accounts (Stockholm: Swedish
Employers Confederation, 1998).
18. For an analysis of the steps in the transition
process to this visionary system, see Göran Normann, "From
Vision to Reality: How to Implement a Flat Tax and Basic Security
Accounts," Swedish Employers Confederation Discussion Paper,
19. Palmer, "The Swedish Pension Reform Model:
Framework and Issues."
20. For a more complete analysis illustrating how
government-run pension funds around the world and state employee
pension funds in the United States have been used for political
purposes, see Daniel J. Mitchell, "Why
Government-Controlled Investment Would Undermine Retirement
Security," Heritage Foundation Backgrounder No. 1248,
February 5, 1999.
21. Palmer, "The Swedish Pension Reform Model:
Framework and Issues."