As we have been pointing out in recent articles, our Pension System is far from being at its best. For this reason, there is talk of mechanisms that would help reformulate the current model. Sweden has already done so, and today we will talk about how it worked out.
The problems of the current system
Currently, the Reserve Fund and, in general, the Social Security are in a complicated moment, because:
- The numbers are not in as of today
- The outlook for the future is not rosy
We could summarize the difficulties in these three:
- The economic recovery IS generating employment, BUT these new Social Security contributions are of low amounts, in the face of very low salaries.
- The baby-boom generation is retiring : a very large population that enjoyed high salaries, so their pensions will also be high.
- There is an aging population that we can see in the transformation of the pyramid: these new pensions become unsustainable without a rise in fertility in Spain.
Models to look at to reverse this situation
We are going to focus on the existing system in Sweden, which was reformed in the 90’s (a little more than twenty years ago); and which experts are talking about as a possible reference for improving pensions in our country.
The old pension system in Sweden
In the 1950s, the now outdated mechanism for setting pensions in Sweden was established, based on:
– Folkpension: a universal basic pension
– Plus a supplement, linked to previous contributions, known as ATP.
The recession of the 1990s provoked a crisis in contributions to the system, and caused a strong feeling of need for change.
The Swedish mixed system
The philosophy on which the reform promoted by the Swedish Parliament was based had 4 objectives:
- Decouple the years contributed from the pension to be received: now they are fixed only on the total contributions to the system, regardless of whether you have contributed for 20 years or 40 years.
- Redistribution of wealth, with transparent management: ensuring a minimum pension for the least favored,
- Sustainability of pensions over time: in the past, it was understood that young people were going to assume the cost of pensions, whatever the cost might be. This was intended to be corrected, because it is unbearable.
- Create a second pillar to support the cost of pensions, aided by private pension managers.
How was the system formulated?
A system of notional accounts was created. Something like “personal” balances, which were formed by 16% of the income of each worker, but it is not that they were saved for their future pension, but only the calculation was saved, because those amounts directly cover the pensions of the moment (continuing with generational solidarity).
And, in these accounts, the time of the contribution is eliminated from the calculation, only the amount matters.
On the other hand, the second pillar consists of a contribution of 2.5% of their income in these funds, which belong to private managers chosen by the State, and among which each citizen can choose their own.
Conclusions on the Pension System
On many occasions, we talk about Scandinavian countries as a reference in many aspects: working hours, productivity, etc. This could be another example. This could be another example.
Thanks to this reform, they eliminated the rigidity of the previous system. The same would happen in Spain, since by eliminating the obligation to contribute for X years, it puts an end to certain injustices, such as having to contribute at least 2 years of the last 15; especially with the difficulties of the current labor market.
Our Savings and Investment Department will help you calculate your retirement pension, as well as have the option of complementing it with a savings plan or a guaranteed or mixed pension plan.
