Demographic Effects on the Swedish Pension System

Bengtsson, T. & Kruse, A. (1992). Demographic Effects on the Swedish Pension System. IIASA Working Paper. IIASA, Laxenburg, Austria: WP-92-035

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Abstract

The present study describes the effect that different demographic developments will have on the Swedish pension system. Projections of expenditures for old age pensions, survivor pensions, and disability pensions were made for the period 1985-2050 on the basis of future developments of the population and its structure (age, sex, and marital status). Six demographic scenarios were formulated: Benchmark, High Fertility, Low Mortality, West European, National 1, and National 2 scenarios. Together they cover a wide range of demographic developments, not to say all probable developments.

A model of the current Swedish pension system is combined with all six demographic scenarios. Projections of expenditures as well as of contributions and benefits in the pension system are made. The pension system will be put under severe strain whatever the demographic development. In all scenarios, expenditures will continue to increase until 2030, in the beginning as a result of the maturing of the system, but after the turn of the century mainly as a result of demographic changes. Expenditures will increase by about 75% in the "most favorable" scenarios (Benchmark/High Fertility, Western European) and by 100% to 130% in the "least favorable" scenarios (Low Mortality, National 1 and 2). After 2030, expenditures decrease in all scenarios except in National 2 where they remain constant. The contribution rates will have to be increased from about 20% in 1985 to between 36% (National 1) and 49.9% (Low Mortality) of the wage sum in 2030.

The impact on contributions and benefits of three selected policy measures are studied: a raising of the retirement age by two years, an extension of the number of years on which benefits are based and an increase in labor force. All three measures will ease the pressure on the system but only to some extent. The main conclusion is that there is a need for a fundamental change in the Swedish pension system.

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