Occupational Pensions in the Future

Michael Møller Niels Christian Nielsen

According to professors Michael Møller and Niels Christian Nielsen, the Swedish occupational pension system is unnecessarily complicated and confusing for the wage earners. They both work at Copenhagen Business School and have studied the Swedish occupational pension system at the request of SNS. They suggest a reformed occupational pension system with a compulsory part with uniform rules for ingoing payments, investments and outgoing payments and a voluntary part that serves to increase the freedom of choice for the individual.

rapport-framtidens-tjanstepensioner.pdf 2.0 MB PDF

In the research report Occupational Pensions in the Future (SNS Förlag), the researchers point out a large number of deficiencies in the Swedish occupational pension system. According to the researchers, the system is like a confusing patchwork quilt that is not only difficult to understand for the wage earners, but which also entails an unnecessarily large amount of compulsory savings for certain groups and which deteriorate the mobility on the labour market. The system also provides unreasonably large possibilities for the individual to place her pension money in risky investments and consume her savings in a short period of time after retirement.

A short summary of the conclusions of the report
THE GOVERNMENT SHOULD ESTABLISH THE FRAMEWORK. The government should establish what level of pension savings that is compulsory.

TWO PARTS: A COMPULSORY PART AND A VOLUNTARY PART. The Swedish occupational pension system should be split into two parts. A compulsory part with less possibilities for individual choice (for example, one should not be allowed to withdraw the pension savings in the short run) and a voluntary part with larger possibilities of choice for the individual (both when it comes to the level of savings and how the funds are administered). The compulsory part is to be governed by rules set by the government (not the labour market parties) and the rules are to be the same notwithstanding within what trade or what profession one is active.

ABOLISH COMPULSORY SAVINGS FOR YOUNG PEOPLE. The age at which one starts to save for one’s occupational pension should be raised and the savings should constitute a constant and or falling part of the income since the need for basic economic social security decreases with increasing incomes. Under the current rules, there are non-motivated compulsory savings for young people and high-income earners.

INCREASED FREEDOM OF CHOICE. The compulsory pension savings should be supplemented with voluntary pension savings where the wage earners get an increased freedom of choice to decide themselves how much they want to save, how the capital is to be administered and when they want to withdraw the pension. This reform in favour of freedom of choice would also open up for increased competition on the market for pension schemes.

EASIER TO UNDERSTAND. These reforms make it easier for wage earners to understand their pension scheme, which creates conditions for an increased involvement in the planning of their pension savings.

A COMMITTEE SHOULD BE APPOINTED. The government should appoint a government committee with the assignment of creating a clear framework for the occupational pension system that will rectify the deficiencies in the current system. According to Anders Vredin, our report constitutes a complete proposal for a committee directive to be presented to the government.

Researchers and Scientific Directors
MICHAEL MØLLER, Professor at Copenhagen Business School – Handelshøjskolen
NIELS CHRISTIAN NIELSEN, Professor at Copenhagen Business School – Handelshøjskolen