Sweden’s public pension system combining a traditional retirement component with individual savings accounts could offer a solution for countries facing a cash crunch, a World Bank report said this week.
The report said Sweden’s track record over the last 10 years “provides valuable lessons for wealthy, middle-income, and developing countries that worry about the continuing solvency of their current pensions systems.”
Sweden’s public pension funds receive 2.5 percent of wage earners’ salaries, which they invest in financial markets for individuals. This supplements the traditional pay-as-you-go system, which is funded by a 16-percent levy on salaries.
Sweden adopted its plan in 1995 and was followed by Italy, Latvia, and Poland.
The idea “is a most promising new approach to pension reform at a time when virtually every country in the world is looking at the viability of their pensions systems, and wondering how to relieve their demographic and economic pressures, while avoiding creating additional burdens for future workers,” said the authors of the study, Robert Holzmann, director of social protection at the World Bank, and Edward Palmer, head of research at the Swedish Social Insurance Agency.
The report suggests that such a scheme “would very much help Japan overcome a number of problems” in its current retirement program that faces massive debts.
The authors said however that any such scheme must be “politically well managed” with proper communication to the public.
The report says it is too soon to know whether people will postpone their decision to retire in order to boost their retirement accounts.
It noted that such a reform cannot be done in isolation but should be considered as a supplement to existing social security systems. While this may not work in all cases it “promises to eliminate obstacles to mobility across professions, countries, and regions.
“This approach makes it an interesting candidate in areas of economic integration such as the European Union, but also China and other emerging economies,” the report noted.