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The Swedish Pension Model?
Naomi Powell of the Globe and mail reports, In Sweden, pension problems are so 1989:
There’s no shortage of pension woes in Europe these days.
Everywhere, it seems, governments are hiking retirement ages, cutting benefits and quelling protests from outraged workers.
Not in Sweden.
It isn’t that the Swedes escaped the troubles now facing many of their
European neighbours, they were just forced to deal with them a long
time ago. Still, the economic crisis presented the first real test of
the country’s pension reform, one it weathered relatively well.
In
the late 1980s, the government realized that without a major overhaul,
the public pension system would be bankrupt in about 20 to 25 years.
The reasons are familiar: a rapidly aging population and a defined
benefit system that would collapse without consistently strong economic
conditions.
“You had this big tanker of pensioners who
were going in one direction and you had pensions that had to be paid by
law,” said Edward Palmer, a professor ofsocial insurance economics at
Uppsala University who helped design the system.
“But you had an
economy that could do anything. We had to get a system that would be
resilient to both economic and demographic shifts and we had to get
people to work longer.”
In a radical change, Sweden scrapped
its traditional defined benefit pension for what's called a "notional
defined contribution" plan (NDC). The notional account recorded each
individual's contributions and a rate of return tied to the national
per capita real wage growth. There was no "real money" in the account -
as in traditional pension plans, contributions fund current retiree
benefits – but thesystem provided a way of keeping score.
Swedes
contribute 18.5 per cent of their pay to the system: 16 per cent to
the NDC and 2.5 per cent to a private account where money is invested
in mutual funds of their choice. The public pension is a significant
portion of retirement income – responsible for 75 per cent of the
average monthly benefit for men at 17,000 Swedish kronor ($2,562 U.S.)
and women at 12,000 kronor. The rest comes from occupational pensions
negotiated between companies and unions.
When workers
retire, their annual benefits are calculated by dividing the account
balance by the life expectancy rate and rate of return based on the
growth of the economy. Benefits are adjusted each year taking into
account changing life expectancies, inflation and the rate of return.
Workers can retire as early as 61, but the longer they stay in the work force, the higher their benefit upon retirement.
The
bottom line? When the economy is strong, pensioners receive more than
they might have under the old structure. But when the economy is weak
pension payments automatically drop to ensure the fund’s stability.
The system was designed in part to take difficult decisions regarding
benefit cuts out of politicians’ hands by allowing them to refer to a
formula.That was the theory anyway. No one really knew how well the system would perform until the global economic crisis.
Pensioners, who had enjoyed years of higher payments following the
changeover to the new system in 1999, suddenly faced a cut of 3 per cent
in 2010 and 4.3 per cent in 2011.
The
government stood behind the system, though eventually politics did get
involved. Taxes for pensioners were slashed to make up for the
shortfall.
“The positive side is that Sweden now has one
of the few public pension schemes that is in good shape after this
crisis,” said Ole Settergren, head of research and development at the
Swedish Pension Agency. “But one of the points was to isolate public
finances from what happens in the pension arena. That didn’t happen.”
Perhaps
the most controversial aspect of the plan is that it shifts the burden
of fund shortfalls onto pensioners – though there is a basement for
how low benefits can fall, at 7,000 kroner a month. And as the crisis
proved, that burden can be significant.
Not a perfect
system then, but sustainable. And one that many countries, including
Egypt, Poland and Brazil have considered as they try to fix their own
pension schemes.
I'm not an expert of the Swedish pension system, but I know about the buffer funds:
Första
AP-fonden’s mission is regulated by the Swedish National Pension Funds
Act. The act (and preparatory work to the act) state that Första
AP-fonden shall:
- Function as a buffer in the pension system
- Maximize long-term return with a low level of risk
- Manage the funds without being influenced by prevailing government policies, whether industrial or economic
- Give consideration to ethics and the environment without compromising the overall goal of attaining a high return
Första AP-fonden, also known as the First Swedish National Pension
Fund or AP1, together with the Second, Third, Fourth and Sixth National
Pension Funds (AP2, AP3, AP4 and AP6), is a buffer fund in the Swedish pension system. The capital of the buffer funds
is used to even out temporary fluctuations during periods when pension
contributions are not sufficient to cover pension disbursements from
the income pension system.
According to the annual report, AP7’s investment returns in 2009 were its highest since the premium pension system launched ten years ago (2009 was a good year for everyone). AP1 also provides its 2009 annual report online and its latest semi-annual report. Both reports provide intricate details on the fund's performance, operations and cost structure.
I
like the Swedish buffer funds and think they're worth looking into more
closely. Even Canada should look at these buffer funds and set
something similar up here (basically building on our existing
defined-benefit plans). Other countries can also learn from the Swedish
pension model and bolster their retirement system. At the very least,
they should examine the pros and cons and see if there is anything they
can adopt to improve on their existing pension system.
»
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Traditional euro-trash solution: raise taxes by 18%, hand over 2% to some squid cronies, and sell it to the public with bullsh*t toxic opaque model a Cray couldn't keep track of, let alone predict.
"Notional Defined Contribution" - this is just a way to shift inflation worries to the pensioner, without adding any real fix to the problem of shifting the cost to future generations.
My company went this route. We are allowed to take some (but far from all) of the notional amount out as an IRA rollover. However, we got a notice in 2010, that if we do this in the future, the monthly pension amount based on the remainder might be calculated at a lower interest rate
So the pension is still being used as a income source to the company. They get to deduct what they put into the pension reserve, and make money on the annuities they pay out. And punish you if you try to avoid the annuity trap.
Company pensions should be outlawed, only IRA/401/Sep entities should be allowed.
A buffer fund is a good idea. Here's another one: bank and non-bank financial institutions that invest money received by pension funds are subject to transaction taxes that go into a general buffer fund.
Oh, and raise taxes on income above $250,000 to 75% or more. You know, back to what they were when America was great and Kennedy was President.
Does no one even question why governments are in the business of providing forced retirement plans?
Let me keep that 18% and I’ll provide for my own retirement or not. If governments are so damn good at finance then they can run a voluntary retirement plan just like any other organization and let the people decide if they want to put their money into it.
There’s no shortage of pPensioners, who had enjoyed years of higher payments following the changeover to the new system in 1999, suddenly faced a cut of 3 per cent in 2010 and 4.3 per cent in 2011. The government stood behind the system, though eventually politics did get involved. Taxes for pensioners were slashed to make up for the shortfall.
So, in other words, the system really didn't work- the so-called balancing was carried out by borrowing money to cut taxes for the recipients? Jeez, any one can keep a system solvent by transferring the added liability somewhere else.
A monkey, riding the short bus could construct a good pension system that would take care of 6,000,000 people.
Why do otherwise seemingly intelligent people insist on extrapolating a model, any model, that works for relatively very few people that are basically clones, to cover a mutty billion people?
How stupid do you have to be to do that?
Ten thousand Swedes ran through the weeds, chased by one Norwegian.
Sorry, the Muslims will take over Sweden, Sharia Law will rule and blondes will be used as slaves.
Any more fantacies? Yes, the USA will some day become a real power again.
fuck them! fuck that!! and if they want war, not this bullshit police state welfare system that we have so kindly provided! then I would give them what they want most and on thier terms... and i am a liberal, with the use of tactical nukes... let isreal drill thru the glass to get my fucking oil.
Dont hold back. Tell us how you really feel.
The most controversial aspect of the system is not taking children into score-account.
Paying 18% of income to current retires and shifting future burden on new generation is no real "contribution". The only part of society contributing to future are families rising and educating children, but it is not accounted in full or not at all.
Original concept comes from a German writer and sociologist Wilfrid Schreiber. Knowing this problem, he planned that workers without children and older than 35 should pay double contribution.
But this part of Schreiber's reform was ignored, because i would slow growth, hurting short term political interest. Such systems are classical ponzi schemes - it works until there is enough fools producing enough new high skilled citizens. Clever ones have no children and accumulate real savings and additionally scores in pension system. Families have less savings and collect much less scores. That's why this pension systems collapses, currently in Poland, soon in Germany.
To make things worse, the shared responsibility don't motivate to rising highly educated children. Parents investing in education do not get any financial rewards back.
Indicative planning Bitchez!
But sweds v. Utah Leo? She cute, I wouldnt kick her out.. right away... but the Mormon's are on to something I think? no?
http://www.google.com/#sclient=psy&hl=en&q=utah+pension+reform&aq=1&aqi=g3g-v2&aql=&oq=&pbx=1&fp=f71c9d2b3ccf4dd5
The Swedish Pensive Model?
http://www.who2.com/photos/Vendela/Vendela_0004.html
Sorry...I really can't help myself sometimes ;-)
Since we're off topic, Swedish model Elin Grindemyr was a 2003 Slitz magazine contender for the title of "Annual Sexiest Girlfriend." In 2005, Elin won the Sexiest Woman in Sweden contest conducted by the same magazine.:)
oh to be a mitten!
Yowza!
I know when I've been breasted...er, um...bested.
Got a link to sexy Abby Joe Cohen pics? Oh, never mind, she's not from Sweden (you are lucky, Sweden!).
you cant argue with that Leo! God Bless Ya...