What is left of the Nordic model of pension provision?

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Presentation transcript:

What is left of the Nordic model of pension provision?

The Nordic model in pensions Has it ever existed? How can it be defined? - historical development - systemic features - policy goals - results

Parallel historical development First wave of reform (1930s): Income tested peoples’ pensions Second wave of reform (1940/50s): Universal peoples’ pensions Third wave of reform (1950/60s): Universal peoples’ pensions+earningsrelated tier Fourth wave of reform (1990/00s):

Two nordic models Universal peoples’ pensions+public earningsrelated tier (Compromise between Beveridge and Bismarck) Sweden and Norway (Finland) 2. Universal peoples’ pensions+negotiated earningsrelated tier (More pure model a la Beveridge) Denmark (Iceland) Common features: high quality minimum protection And despite systemic differences: similar results Low income inequality in old age+ significant redistribution of liftetime income

Income inequality among old age pensioners Mid 1990s

Income inequality in old age Contribution from different sources

The current wave of reform Automatic adjustment to changes in longevity Sweden, Finland, Denmark, Norway Automatic adjustment to hard budget line Sweden Flexible retirement age with actuarial adjustment of benefits Sweden (Denmark, Finland) - Norway? Proportional income security with targeted minimum guarantee Sweden, Finland and Norway - Denmark the only Nordic country to maintain a universal basic pension

Three Nordic models 2000-? 1.Universal peoples’ pension + negotiated earningsrelated tier Denmark (Iceland) 2.Proportional income pensions+ minimum guarantee adjusted to wages Norway (Finland?) 3.Proporsjonal income pensions+ minimum guarantee adjusted to prices Sweden

The Swedish reform (Finland and Norway) Reduced benefit levels Radical recasting of the generational contract Less redistribution: the level of minimum protection is programmed to decrease in relative terms Likely consequence: significant increase in relative income poverty and income inequality among old age pensioners

Replacement rates public pensions (gross). Average wage earner Source: EU Sosial Protection Committee 2006

Replacement rates Public+private pensions (net). Wage earners with average wages Source: EU Sosial Protection Committee 2006

Overcompensation to low wage-earner Total public+private pension. Replacement rate at average wage =1,00. Low wage=2/3 of average wage Source: EU Sosial Protection Committee 2006

Overcompensation to low wage-earners Total public+private pension. Replacement rate at average wage =1,00. Low wage=2/3 of average wage Source: EU Sosial Protection Committee 2006

Benefit profile Single pensioner with constant earnings

The distribution of old age pensions 2050 Source: SSB

The new Nordic model: Over to Bismarck! Still distinctive features in minimum protection Integrated with the proportional income pensions High level of protection (-Sweden?) Limited income testing An individual minimum guarantee What is left?