A German perspective of the new Swedish public pension system

Sweden recently reformed its public pension system by replacing the former defined-benefit system with a “notional defined-contribution system ”(NDC). The new system has a strong focus on financial sustainability. It emphasizes the principle of equivalence, includes the increasing life expectancy of the Swedish population into the calculation of pensions and establishes a so-called “automatic balancing mechanism”. Hence political agreements concerning possible adjustment measures in the future will become unnecessary. However, all financial risks are approached at the expense of the level of pension benefits. The comparatively high pension level projected for future decades is above all due to the existence of large buffer funds. Taken together, whatever the systematic choices of each retirement system may be, there is no golden path out of the dependency from economic and demographic developments.

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