Se - Ar 2021 Final Pension Fiche

2020-12-10
The Swedish pension system and pension projections until 2070
This document is the Swedish pension fiche prepared for the EPC
Working Group on Ageing Populations and Sustainability peer
reviews 2020.
1. An overview of the pension system

The Swedish public old-age pension system covers everyone who has worked or
lived in Sweden and consists of an earnings-related component based on notional
accounts, a private mandatory defined contribution system and a pension-
income-tested minimum top-up, the guarantee pension. On top of that, most
employees are covered by occupational pension schemes. The possibility to make
tax-deductions for private pension savings was abolished in 2016.
1.1 The Swedish public pension system

The present Swedish public old-age pension system was fully implemented in
2003. The earnings-related old-age pension system consists of a notionally
defined contribution (NDC) PAYG component and a fully funded, defined
contribution (DC) pension component.1 Both are based on lifetime earnings and
individual accounts. In addition, there is a pension-income-tested top up, the
guarantee pension, which is financed by general taxes from the central
government budget. The same pension rules apply to all persons regardless of
occupational sector and for employees and self-employed alike. The old-age
pension system is independent in the sense that income and expenditure are
governed by a fixed set of rules, and not part of the Government budget. This
independence is further strengthened by the fact that its rules are decided in
agreement by a six-party working group in Parliament.
The public pension system which was replaced in 2003 consisted of a flat-rate
pension provided in full to everyone with at least 40 years of residence in Sweden
between the ages of 16 and 65. Further, it included an earnings-related pay-as-
you-go (PAYG) component providing a benefit based on 60 per cent of an
average of the contributors best 15 years of earnings, with 30 years required to
receive a full benefit. Only persons born before 1938 receive their full pension
1
The latter part is classified as private savings in the National Accounts.
based on these rules, and there are transition rules for those born between 1938
and 1953, so it is only of minor importance in 2020.
The Pension Group in Parliament
There is a pension group in Parliament with representatives from all but two
parties, representing a broad majority. The group was formed when the new
system was first introduced in 2003, and it is still responsible for the
maintenance of the pension reform. As a praxis, any change in the pension
system requires consensus in the group. This means that it is a relatively time-
consuming process to introduce change to the pensions system as only change
which is supported by the whole group will be accepted. Hence, relatively few
modifications have been made to the system since its introduction. Instead
there is a tendency for the Government to use changes in the tax system or
outside the pension system if they want to change the economic conditions for
pensioners.
Pension rights are credited to the individual accounts for 18.5 percent of the
annual pensionable income up to a ceiling amounting to 8.07 income base
amounts.2 16 percentage points are paid to the NDC PAYG system and 2.5
percentage points to the funded DC system. The insured person pays a pension
contribution amounting to 7 percent of the gross pensionable income, and the
employer 10.21 per cent.3 The individual’s pension contribution is fully
deductible on other income taxes, so very few individuals do in fact pay
contributions. Contributions over the pension ceiling are transferred to the
central government budget as general tax and do not affect the income-based
pension system. Contributions are also paid by the central government to cover
pension entitlements credited for social insurances, such as benefits for
unemployment, sickness, disability or parental leave.
The retirement age is flexible, and individuals can claim benefits from the age
of 62 without any upper limit.4 The decision to draw a pension does not mean
that the individual must stop working. He or she can continue to work and earn
new pension entitlements. Under the Employment Protection Act an employee is
entitled to stay in employment until his or her 68th birthday.5 Since it is possible
2
The income base amount was SEK 66 800 or approx. 6 300 € in 2020, so the public pension ceiling was SEK 539
100 or approx. 51 000 €. It is indexed to the change of average earn ings.
3
The contribution is calculated on earnings net of the employee contribution, i.e. (0.07+0.1021)/(1 -0.07) = 0.185
4
The earliest age for an old age pension was raised by 1 year for both women and men 1 January 2020.
5
Employment protection will be extended to 69 years at 1 January 2023.
2 (47)
to start drawing a pension and continue to work, the average exit age from the
labour market is disconnected from the average age for first pension.
Table 1. Qualifying conditions for retiring

For all men and women and all years 2020 – 2070
The earliest possible retirement age is 62 years for earnings related income
pension and 65 years for non-earnings-related guarantee pension.
The yearly pension is calculated on the individual’s pension entitlements at
retirement and the expected remaining life length. Hence, if a person retires
early, at the age of 62, the pension will be correspondingly smaller than if he or
she decides to retire later.
The non-earnings-related guarantee pension is reduced in proportion to the
time spent in Sweden, with a full pension awarded after 40 years of residence.
Source: Ministry of Finance
The average age for pension withdrawals has been more or less constant at a bit
less than 65 years the last 10 years, and there is no clear trend. The fact that the
age limit for the disability pension and the first possibility do draw a guarantee
pension is 65 years helps preserve the 65-year norm. However, more people now
draw a pension before the age of 65, just as more people wait until after 65 years,
so the spread in the age of first pension withdrawal is increasing. Even if the exit
age from the labour market shows an increasing trend, see graph 1, in the
projections the exit age, just as the first age to draw a pension is unchanged, see
table 5a and 5b.
The NDC PAYG system

The main part of the public pension system is NDC PAYG and works on an
actuarial basis. At the time of retirement an annuity is calculated by dividing the
individual’s cumulated account assets by a divisor reflecting unisex life
expectancy at the specific date of retirement. 6 The individual can counteract the
negative effect on the annuity caused by increasing life expectancy by postponing
the date of retirement. Hence, incentives are strong to prolong the working
career. If for example an individual born in 1946 delayed the retirement from 65
to 67 the annuity divisor decreased from 16.31 to 15.16 and the NDC pension
consequently increased with 7.6 % for an unchanged level of cumulated account
assets.
The NDC savings is as a primary rule indexed by the average rate of growth
of earnings per contributor. However, pensions are front-loaded so that
6
The gender-neutral annuity divisors in the NDC system result in about 8% higher pension for women (at age 65)
compared to a system based on sex specific life expectancies.
3 (47)
pensioners receive a share of the real economic growth in advance. This makes
the fall in income after leaving employment smaller and gives a pensioner a
relatively higher income at the beginning of retirement than towards the end.
In case of financial sustainability problems though, an automatic balancing

mechanism is activated, and the indexation is reduced until stability is restored.
The automatic balancing mechanism guarantees that the system will be able to
finance its obligations with a fixed contribution rate and fixed rules regardless of
the demographic or economic development. The balancing indexation was
activated for the first time in 2010 due the financial crisis in 2008. This balancing
period ended in 2018, when pensions were restored to the income index level,
and normal indexing rules was applied from 2019.7 The balance index for 2020
was 1.0505 and it is not expected to below 1 due to the Corona virus pandemic.
Hence, the balancing indexation is not activated in the projection period.
Non-earnings-related minimum pensions and basic security

The non-earnings-related Guarantee pension is financed by general tax revenues.
The benefit is proportionally reduced if the number of residence years in Sweden
falls short of 40. The guarantee pension, together with the means-tested housing
supplement for pensioners (BTP), is higher than the minimum income standard
in the system for general social assistance. All forms of basic security benefits for
the elderly can only be received from the age of 65. The guarantee pension is
price indexed and fully taxed.8 Unlike the earnings-related pension, the guarantee
pension is paid only to pensioners living in Sweden and the EES area.
The guarantee pension is means-tested against public pension income and
survivor benefits, from Sweden and other countries, but not against work
income, etc. For low incomes, the benefit is reduced krona by krona, and for
higher incomes, the benefit is reduced by 48 per cent, so that it is fully phased
out when pension income reaches 3.07 price base amounts (PBA) for single
households and 2.72 PBA’s for cohabitants. The annual benefit amounts to a
maximum of 2.13 PBA’s for single households (some 9 700 € in 2020), and 1.90
PBA’s per person for cohabitants (some 8 650 € in 2020).9
The tax-free means tested Housing supplement for pensioners (BTP) is
formally outside the old-age pension system, but de facto closely interlinked.10
7
More details about the automatic balancing can be found in annex 2.
8
Income indexation is assumed from the end of the medium -term projection period 2023 for all transfers and taxes
regardless if legislation states otherwise.
9
The price base amount 2020 is SEK 47 300 or some 4 570 €. It is indexed to the change of the consumer price
index.
10
BTP amounts to maximum SEK 6 540 a month (618 €) for a single household in 2020.
4 (47)
There is also a Special housing supplement (SBTP) for pensioners with low
income and high housing costs. Finally, there is a tax-free means-tested program,
Maintenance support for the elderly (ÄFS), which ensure that pensioners with
very low income, usually immigrants with few years of residence in Sweden, do
not become dependent on social assistance. The size depends on household
income and housing costs but is by design always higher than the social
assistance benefit.
Occupational pensions
Most employees in the public and the private sector, some 95 per cent of all
female and 93 per cent of all male employees, are covered by semi-mandatory
occupational pension schemes based on collective agreements between the
unions and the employers’ confederations. These occupational pension schemes,
financed through employers’ contributions, provide a supplement to the public
system, and a top-up for incomes above the public pension system ceiling. Thus,
these schemes are more important for high-income earners. There are four major
occupational plans: blue-collar workers in the private sector, white-collar workers
in the private sector, central government employees and local government
employees.11
Information of pension entitlements and expected benefit

The Pension Agency sends a yearly statement of account to every insured person
in which the fees which were payed into the system and the size of the
accumulated assets are reported, together with an assessment of the expected
monthly benefit at different pension ages. It is also possible for an insured
person to log on to a web page12 at any time and obtain personal information of
accumulated pension assets and estimated benefit levels, including data for
occupational pensions. In this way, the individual can make an informed decision
whether to retire at a specific time or not.
There is no statutory retirement age

It is possible to retire and stop working at the age of 62 but the loss for the
individual is twofold. First, the benefit is based on lifetime contributions, which
implies that all years with earnings will increase the benefit. Second, the level of
11
The occupational systems have been renegotiated to harmonize with the reformed public pension system, towards
more defined contribution and less defined benefit. There are long transitional periods. The calculations only cover
negotiated pensions paid out as a supplement to public pensions, and no other negotiated cessation compensation,
etc. paid out before the age of 65.
12
www.minpension.se
5 (47)
the benefit is calculated using the cohort-specific unisex life expectancy at the
date of retirement. Hence, leaving working life early implies both a lower
acquired pension capital and a longer period of payment, a higher annuity divisor,
and therefore the annual benefit will be lower compared with a later retirement
age.
Regardless of the flexibility in the reformed pension system there is a strong
tendency to claim public pension at age 65, which was the statutory retirement
age in the old system. However, as has been pointed out earlier, to claim a
pension is not the same as leaving the labour force. In 2019 the average age for
the first public pension payment was 64.6 years, which has varied very little the
last 15 years.13 On the other hand, the average age for withdrawal from the
labour market, which shows a clearly increasing trend for both women and men
since the mid-1990s, was estimated at 64.0 years in 2019 (see graph1).
Graph 1. Average exit age from the labour market
65
Men Women Total

64
63
62
61
60
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Note: Calculations based on the labour market survey.

Source: Swedish National Pension Authority
Survivor’s and disability pension

The reformed pension system is individual based. The previous widow’s pension
(women only) has been replaced by a new, temporary and gender-neutral, so-
called adjustment allowance. However, due to the long phase out period, widow’s
pensions will continue to be paid out for several decades. In the reformed
13
The average pension age for persons working at age 50 including disability pensioners. Source: The Swedish
Pensions Agency.
6 (47)
system, a survivor will receive an adjustment allowance for 12 months as a
standard, but the payments continue if the survivor has children younger than 12
years. The size of the adjustment allowance, as well as the widow’s pension, is
based on the deceased’s earnings.
Disability benefits, which are equivalent to disability pensions in most
European countries, are formally a part of the sickness insurance scheme. The
benefit is only available till age 65, and individuals with disability benefits
continue to accumulate pension entitlements in the public pension system. The
pension contributions are paid by the central government budget. Public old-age
pension benefits for disabled persons are based on lifetime earnings, just as for
everyone else.14
Private individual pensions
The mandatory premium pension system

The second part of the public system is a mandatory fully funded defined-
contribution part, the Premium pension. The system is administered by the state
and financed by a contribution rate of 2.5% of pensionable earnings, following
the same transition rules as the PAYG system. In the National Accounts,
however, this system is a part of household savings.15 Individuals can choose
from more than a hundred different funds when investing their capital. A
government run default fund caters for people who do not make an active
choice. The individual mutual funds earn a market rate of return. At retirement,
at any age from 62 years, individuals can choose a fixed or variable annuity, in
part or in full. It is possible to include a survivor’s protection component for this
part of the public system which will give a partner the right to accumulated
funds. In this case the pension will be lowered to reflect the expected longer
payment period.
Voluntary private pensions

Until 2016 it was possible for all people to make tax-deductions for private pension
saving. For self-employed not eligible for occupational pension plans deductions are
still allowed. The maximum yearly deduction allowed for self-employed is 35 percent
of business income not exceeding 10 PBAs (SEK 470 300 or EURO 44 700).
14
Disability pensioners receive extra pension rights based on a calculated wage they should have had if they had
worked. Survivors and disability pensions are income indexed in the calculations.
15
The reclassification to the private sector in 2007 reduced general government net lending by approximately 1
percent of GDP.
7 (47)
Taxes and pensions
Old-age (including guarantee pension), disability and survivors pension, are subject
to income tax (but not payroll taxes). The means-tested basic security allowances
(BTP, SBTP and ÄFS) are tax-free. Private tax-deductible pension savings, as well
as funded occupational pensions are taxed ETT (contributions Exempt, returns
Taxed, benefits Taxed). The mandatory premium pension is taxed EET. People
who are 65 years or older are subject to lower employment fees and also pay a
lower income tax on earned income.
1.2 Recent reforms of the public pension system included in the

projections
Reform to the Premium Pension System

An aspect of the pension system that is being discussed is the complexity of the
Premium pension system and the number of funds for investment in this system.
The last few years there have been examples of aggressive telephone promotion
of certain funds with high administrative fees. There have also been cases of
financial transactions in funds which have led to a poor result for the fund
holders, and even to criminal investigations. Another problem with the Premium
pension system is that relatively few people bother to make an active choice of
funds. As a response, the Pensions Authority has introduced a number of
measures to reduce the number of funds, increase the control of remaining funds
and to make the system less sensitive to mis use and fraud.
An increase in the earliest age to draw a public old age pension

The first of January 2020, the earliest age to receive an old age pension was
increased one year for both women and men, from 61 years to 62 years. This was
a first step of a more comprehensive pension reform which is described in the
box below. The effect of this first step on both pension expenditure and labour
supply was only minor as only some 9 000 people applied for an old age pension
in 2019, and the majority of these did not leave the labour market.
A new pension supplement for mid-income pensioners

In March 2020 the Parliament Pension Group agreed to increase pensions 2021
through a new supplementary pension benefit of maximum 600 SEK per month
(55 Euro) for people with a monthly pension of 9 000 – 17 000 SEK (870 –
1 635 Euro). A measure of this size was proposed in the Budget proposal for
2021 and will take effect in 1 September 2021. The pension supplement is an
expenditure item on the central government budget and is financed by taxes. The
8 (47)
permanent cost increase from this measure is estimated at some 0.1 percent of
GDP, see table 19.
A substantial pension reform is under way
In 2013 a government inquiry, The Pension Age Committee, made several

proposals on pension-related age limits and ways to promote a longer working
life.16 The committee proposed that the earliest age of retirement, 61 years at
the time, and the earliest age for guarantee pension, 65 years, should both be
indexed to the expected life length at 65 years. It also proposed a non-binding
indicative age for retirement that should increase in the same way.
In December 2017 the Parliament Pension Group agreed on changes which

are in line with The Pension Age Committee’s proposal. As a first step of this
pending pension reform the earliest age to draw an old-age pension was
increased from 61 to 62 years at the first of January 2020. In the Government’s
budget proposal for 2021 a continuation of this reform was announced which
will increase the earliest age one more year in 2023 and 2026 respectively, so
that an old-age pension is available at age 64 at the earliest in 2026. Parallel to
this the earliest age for the guarantee pension will be raised from 65 years
today, till 67 years in 2026. The age at which employment protection ends will
also be increased at the same time.
From 2026 and onwards exit ages will be indexed to a new “indicative age”,
which will increase in line with remaining lifetime at 65 years. The Eurostat
population projection for Sweden foresees a further increase in all of the above
exit ages again at 2035, 2051 and 2069, increasing the earliest age for an old-age
pension to 67 and the earliest age for the guarantee pension to 70 in 2069.
As the above-mentioned reform is expected to be approved by Parliament only

in the spring of 2021, it is not included in the baseline alternative, but only in
the alternative where the retirement age is indexed to life expectancy.
1.3 Description of the "constant policy" assumptions in the

projections
All types of pensions, benefits and thresholds in the pension and tax systems are
income indexed from 2024 in the calculations, regardless if legislation states
16
SOU 2013:25, see http://www.regeringen.se/sb/d/16827/a/214148. The report is in Swedish but contains a
summary in English (page 39-56).
9 (47)
otherwise (e.g. guarantee pension, BTP, SBPT and ÄFS are price indexed by
law).17 The fact that the Pension Group in Parliament need to approve changes
to the pension system means that it is easier for the government to help low-
income pensioners outside the pension system. Hence, the price indexation of
the guarantee pension has not been changed since the system was implemented
in 2003. Instead, the enhanced basic tax deduction and the BTP, which are
outside the pension agreement, have been made more generous to compensate
for the indexation only to prices. The income indexation of the minimum
pension in the AWG calculations might therefore be too cautious, while a price
indexation probably would be too restrictive.
2. An overview of the Demographic and labour forces projections

2.1 Demographic developments
The Swedish population is expected to increase fairly rapidly from a bit more
than 10 million in 2020 to just over 13 million in 2070 in the latest Eurostat
projection, or by some 26 percent, see graph 2 and table 2. This is a slower
increase than in the previous Eurostat population projection where the
population reached 13.9 million in 2070.
The population increase is mainly driven by a strong positive net migration. In
a scenario with zero net migration, Eurostat predicts that the Swedish population
would continue to grow until around 2030, but at a much slower rate, and then
decline so that there would be some 610 000, or around 6 per cent, fewer people
in Sweden 2070 than in 2020.
Life expectancy at birth is expected to increase by some 5.5 years for both
sexes from 2019 to 2070, from 81.4 years for men and 84.7 years for women, to
86.8 and 90.3 years respectively. The bulk of the increase in life expectancy
occurs above the age of 65. Life expectancy for 65-year-olds, which determines
the pension benefit for people who decide to retire at that age, increases by 4.0
years for men and 4.6 years for women.
17
By law some thresholds in these systems are not indexed at all or nominally fixed.
10 (47)
Graph 2. Total population, thousands of people
14,000
Europop 2019 Europop 2017
13,000
12,000
11,000
10,000
9,000
15 20 25 30 35 40 45 50 55 60 65 70
Source: Eurostat
Strong immigration and rapid population growth make the old-age dependency
ratio increase at a relatively slow rate compared to many other member states.
Nevertheless, the number of people who are 65 years and older per 100 persons
in the ages 20 to 64 years old is expected to increase from 35.2 in 2019 to 49.8 in
2070.
In table 2, 2070 is the peak year for the old age dependency ratio, but most
likely this ratio will continue to rise, indicating continued cost increases in the
years after 2070. In comparison with most other member states, however, the
development in Sweden is relatively benign (see graph 3). Whereas Sweden has
the eighth highest dependency burden in the union in 2019, it is projected to
have the lightest burden in 2070. This means that Sweden is expected to have the
smallest increase in the dependency burden of all member states. The difference
between the latest Eurostat population forecast and the previous one is small,
with slightly more people in active ages in relation to old people in the near
future in the new projection, and a marginally higher dependency ratio in the
long run.
11 (47)
Table 2. Main demographic variables
change
peak peak 2019-
2019 2030 2040 2050 2060 2070 value year 2070
Population (thousand) 10 276 11 131 11 722 12 280 12 727 13 082 13 082 2070 2 805
Population growth rate 1.0 0.6 0.5 0.4 0.3 0.3 1.0 2019 -0.7
Old-age dependency ratio (pop 65+ / pop 20-
64) 35.2 38.4 41.2 43.0 48.4 49.8 49.8 2070 14.6
Old-age dependency ratio (pop 75+ / pop 20-
74) 13.6 17.3 18.5 20.6 21.9 25.2 25.2 2070 11.6
Ageing of the aged (pop 80+ / pop 65+) 25.8 33.7 33.8 37.2 36.9 40.4 40.4 2070 14.6
Men - Life expectancy at birth 81.4 82.5 83.7 84.8 85.8 86.8 86.8 2070 5.4
Women - Life expectancy at birth 84.7 85.9 87.1 88.2 89.3 90.3 90.3 2070 5.6
Men - Life expectancy at 65 19.7 20.4 21.3 22.2 23.0 23.7 23.7 2069 4.0
Women - Life expectancy at 65 22.0 22.9 23.9 24.8 25.7 26.6 26.6 2070 4.6
Men - Survivor rate at 65+ 90.2 91.6 92.6 93.6 94.4 95.1 95.1 2070 4.9
Women - Survivor rate at 65+ 93.6 94.5 95.3 95.9 96.4 96.9 96.9 2070 3.4
Men - Survivor rate at 80+ 64.9 69.4 73.0 76.3 79.2 81.8 81.8 2070 16.9
Women - Survivor rate at 80+ 75.9 79.6 82.5 85.0 87.2 89.1 89.1 2070 13.2
Net migration (thousand) 66.7 52.1 45.5 39.8 35.1 30.3 69.2 2020 -36.4
Net migration over population change 0.7 0.8 0.8 0.8 0.9 0.9 0.9 2064 0.3
Source: Eurostat
Graph 3. The number of persons who are 65 years and older per 100 persons in ages 20
– 64 years
60
55
50
45
40
35
30
2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070
Sweden - Europop19 EU - Europop19 Sweden - Europop17
Source: Eurostat
12 (47)
The Age structure in graph 4 illustrates the increase of the population 65 years
and older. While some 5.2 percent of the population was 80 years or older in
2019, and some 20.0 percent 65 years and older, the same numbers are expected
to be 10.6 percent and 26.3 percent in 2070. The share of the population in ages
20–64 years falls from 56.8 percent to 52.8 percent in the same period.
Graph 4. Age structure comparison: 2019 vs 2070

SE - Population by age groups and sex as a
share of total population Age
Males groups Females
90+
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
2070
5-9
2019
0-4
4 3 2 1 0 0 1 2 3 4
Source: Eurostat
2.2 The labour force

Table 3 shows the change in participation and employment rates in the age
groups, 55 to 74 years. There is no statutory retirement age in the Swedish
pension system, and existing financial incentives, the fact that the benefit is
reduced as life expectancy at the time of retirement increases, are assumed to
have no effect on the labour supply in the calculations. Hence, when
participation and employment rates are unchanged by age and sex, changes in the
composition of the population in working ages will result in small variations in
13 (47)
the aggregate rates over the period 2020–2070. Even if there is no clear trend,
the fluctuations result in a high point relatively early in the period and a slightly
lower labour supply per person in the age group 20-74 years in the long run.
The Cohort Simulation Model does not take origin into account, so all people
coming to Sweden immediately is assumed to acquire average age- and sex
specific probabilities of joining the labour force and being employed. This means
that the labour supply in the projections most probably is over estimated, as
immigrants coming to Sweden need some time to enter into the labour market,
and on average work fewer hours than people born in Sweden even after several
years in the country. A high positive net migration will also mean that there will
be more people entering the Swedish labour force at a more advanced age, which
will shorten the average career length and pensions. This effect will be even
bigger as immigrants are more likely to leave Sweden than people born there.
Table 3. Participation rate, employment rate and share of workers for the age groups 55 -
64 and 65 – 74
change
peak peak 2019-
2019 2030 2040 2050 2060 2070 value year 2070
Labour force participation rate 20-64 87.3 87.2 87.3 87.1 87.3 87.1 87.5 2023 -0.3
Employment rate of workers aged 20-64 82.1 83.1 83.2 83.0 83.2 83.0 83.2 2061 0.8
Share of workers aged 20-64 in the labour force 20-64 94.1 95.3 95.3 95.3 95.3 95.3 95.3 2029 1.2
Employment rate of workers aged 20-74 71.8 73.1 72.6 72.7 71.4 72.2 73.3 2029 0.4
Employment rate of workers aged 55-64 77.9 76.5 76.1 76.0 76.0 76.0 77.9 2019 -1.9
Labour force participation rate 65–74 17.8 17.8 17.5 17.5 17.3 17.4 18.1 2033 -0.4
Employment rate of workers aged 65-74 17.4 17.5 17.2 17.2 17.0 17.1 17.8 2033 -0.3
Median age of the labour force 41.0 40.0 41.0 41.0 41.0 41.0 41.0 2019 0.0
Source: Commission Services
The fact that the age of retirement and exit from the labour market is assumed
unchanged is reflected in tables 4a and 4b. The average effective exit ages are
more or less unchanged for both women and men, and the share of adult life
spent in retirement increases steadily and will be above one third on average in
2070.
The projected contributory period is the same both 2019 and 2070 for men,
while it increases by some 1.4 years for women. This is explained by the historic
increase in the participation rate for women, i.e. that females that entered the
14 (47)
labour market 1960’ies and 1970’ies have a shorter contributory period on average,
and by more primarily male immigrants which will have shorter than average
careers. In addition, the phasing in of the reformed NDC pension system, where
periods outside the labour market, i.e. unemployment, parental leave, generates
pension rights, contributes to an increase.
Table 4a. Labour market effective exit age and expected duration of life spent at
retirement - MEN
change
peak peak 2019-
2019 2030 2040 2050 2060 2070 value year 2070
Average effective retirement age (administrative 64.4

data)*
Average labour market exit age (CSM)** 65.6 65.6 65.6 65.6 65.6 65.6 65.6 2027 0.0
Contributory period 41.3 40.8 38.1 39.7 40.0 41.2 41.3 2020 -0.1
Duration of retirement*** 18.7 19.6 20.4 21.3 22.1 22.8 22.8 2069 4.1
Duration of retirement/contributory period 0.5 0.5 0.5 0.5 0.6 0.6 0.6 2068 0.1
Percentage of adult life spent in retirement**** 28.2 29.2 30.0 30.9 31.7 32.4 32.4 2069 4.2
Early/late exit***** 2.8 2.5 2.0 2.3 2.0 1.9 2.8 2020 -0.9
* The effective retirement age shows the age at which people on average start receiving a pension benefit. It is calculated on the basis of the administrative data for
2019 (see Annex Tables A4a and A4b); ** “Average labour market exit age (CSM)” refers to year 2020 instead of 2019, and is calculated on Labour Force Survey
data for the base year and estimated by the Cohort Simulation Model thereafter; *** ‘Duration of retirement’ is calculated as the difference between the life
expectancy at the average labour market exit age and that exit age itself; **** The ‘percentage of adult life spent in retirement’ is calculated as the ratio between
the duration of retirement and the life expectancy minus 20 years; ***** Early/late exit is the ratio between those who retire and are below the statutory retirement
age and those who retire at the statutory retirement age or above.
Tabell 4b. Labour market effective exit age and expected duration of life spent at
retirement - WOMEN
change
peak peak 2019-
2019 2030 2040 2050 2060 2070 value year 2070
Average effective retirement age (administrative 64.4

data)*
Average labour market exit age (CSM)** 64.5 64.6 64.6 64.6 64.6 64.6 64.6 2029 0.1
Contributory period 40.4 40.4 38.8 40.7 41.5 41.8 41.8 2070 1.4
Duration of retirement*** 22.7 22.9 23.9 24.8 25.7 26.6 26.6 2070 3.9
Duration of retirement/contributory period 0.6 0.6 0.6 0.6 0.6 0.6 0.6 2063 0.1
Percentage of adult life spent in retirement**** 32.8 32.9 33.9 34.7 35.5 36.3 36.3 2070 3.5
Early/late exit***** 2.3 3.2 2.6 3.0 2.5 2.3 3.2 2030 0.1
The assumption of an unchanged retirement age in combination with the

expected increase in the longevity will make the duration of the retirement
increase with approx. 4.0 years for men and 4.5 years for women between 2019
and 2070. This means that the annuity divisor in the NDC and other actuarial
parts of the pension system will increase, and that the yearly pension payments
15 (47)
will be correspondingly lower. As pension payments from the NDC system does
not keep up with growth, an increasing share of the retired population will
receive guarantee pension.
Compared to the previous calculation, after the fall in 2020 employment and
hours worked increases at a more rapid rate in the short run compared to the
previous calculation, see graph 5. In the longer run labour supply increases at a
slower rate when population growth is projected to be slower.
Graph 5. Hours worked, index 2019=1

1.30
1.25
1.20
1.15
1.10
1.05
AWG21 AWG18
1.00
0.95
20 25 30 35 40 45 50 55 60 65 70
3. Pension projection results

3.1 The coverage of different pension schemes in the projections
The projections include the public income pension and the means tested
guarantee pension, as well as disability and survivor’s pensions. The calculations
also include occupational and private pension schemes. Also Housing supplement for
pensioners and other means tested transfers for pensioners are included.18 Apart
from the population living in Sweden, the calculations cover individuals with
Swedish pensions living abroad.
There are minor differences between the ESSPROS data presented by
Eurostat and the data used by AWG. First, there is a small difference between
the ESSPROS data presented by Eurostat and Statistics Sweden. Second, there
are definition differences between the ESSPROS numbers from Statistics
18
In ESSPROS the housing subsidy is seen as a benefit in kind (function 7, housing), but in practise it is closely
integrated with the pension system. The benefit is not a part in any other item calculated in the AWG projections.
16 (47)
Sweden and the data used in the AWG calculations, see table 5. The AWG
numbers exclude the work injury benefit and some minor benefits for
handicapped but include the housing supplement for the elderly and disabled.
The excluded and included items are of the same magnitude, and the GDP-ratio
for the public expenditures remains approximately the same.
Table 5. Eurostat (ESSPROS) vs. Ageing Working Group definition of pension

expenditure (% GDP)
change
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009-2018
Eurostat total pension expenditure 12.2 11.4 11.2 11.6 12.0 11.6 11.3 11.3 11.2 10.9 -1.3
Eurostat public pension expenditure (A) 9.4 8.7 8.2 8.5 8.7 8.4 8.1 8.1 8.0 7.8 -1.6
Public pension expenditure (AWG: outcome)
(B) 9.6 8.8 8.3 8.6 8.8 8.4 8.1 8.1 8.0 7.8 -1.8
Difference Eurostat/AWG: (A)-(B) -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 0.0 0.0 0.0 0.0 0.2
Sources: Eurostat, Statistics Sweden and Ministry of Finance
3.2 Overview of the projection results

Projected gross public pension spending as a percentage of GDP will end up at
7.5 % of GDP in 2070 in the baseline scenario, a decrease of 0.1 percentage
points compared to the starting year 2019. The growing importance of the
premium pension (which statistically speaking is outside the public sector) more
than makes up for this development. This system will mature gradually and grow
in importance until 2070, and thus the private individual mandatory part of total
pension expenditure will increase. Other factors that hold back public sector
expenditure are the phasing out of the widow’s pension and a relatively small
inflow into disability pension.
The importance of private occupational pensions will diminish over the entire
projection period. Compared to the AR2018 projections the occupational pensions
develop less favourably now, which is explained by a lower interest rate assumption
in the current projection. The occupational and private individual schemes are
mainly DC and sensitive to the interest rate. Compared to AR2018 the interest rate
is assumed to be lower than income growth, leading to smaller pensions compared
to PAYG systems, given the same contribution rate.
The development of the private individual pensions depends on two

offsetting factors. Mandatory private premium pensions will increase from zero
in 2003 to 1.2 per cent of GDP in 2070, as the system is maturing. On the other
hand, non-mandatory private pensions will gradually fade out due to the
abolition of tax deductibility for wage earners in 2016. Consequently, most
people are expected to stop saving in the system. However, a small part will
17 (47)
remain in the system as contributions from self-employed without occupational
pension still will be tax deductible. The fact that most pension expenditure are at
their highest as a share of GDP in 2020, and the relatively big difference between
the peak value and the value in 2019, is explained by the fall in GDP in 2020 due
to Covid-19.
Table 6. Projected gross and net pension spending and contributions (% of GDP)
change
Expenditure 2019 2030 2040 2050 2060 2070 peak value peak year 2019-2070
Gross public pension
expenditure 7.6 7.4 7.1 7.0 7.4 7.5 8.4 2020 -0.1
Private occupational pensions 3.3 2.6 2.0 1.7 1.3 1.2 3.6 2020 -2.1
Private individual mandatory
pensions 0.2 0.5 0.8 1.0 1.2 1.2 1.2 2062 1.0
Private individual non-
mandatory pensions 0.5 0.3 0.1 0.0 0.0 0.0 0.5 2020 -0.5
Gross total pension expenditure 11.6 10.7 10.0 9.8 10.0 9.9 12.7 2020 -1.7
Net public pension expenditure* 5.8 5.6 5.5 5.5 5.9 6.0 6.4 2020 0.2
Net total pension expenditure* 9.1 8.2 7.6 7.6 7.7 7.6 10.0 2020 -1.6
Public pension contributions 5.7 5.9 5.9 6.0 6.0 6.1 6.4 2020 0.3
Total pension contributions 8.5 9.0 9.5 9.9 9.8 9.9 9.9 2069 1.4
Pensions are taxed in the same way as other income in Sweden. Thus, it is not
possible to differentiate tax rates between different pension schemes. The
downward trend of tax revenues from public pensions (1.6% of GDP in 2019
versus 1.9% of GDP in 2070), is mainly explained by the fall in gross pensions.
The average implicit tax rate for pensioners will decrease until 2070, as lower
replacement rates will result in lower marginal taxes.
The earnings–related pensions will decrease until approx. 2050 due to the ageing
effect, see table 7. The fall in the earnings–related pension ratio is mitigated by the
gradual transition from the old DB system to the NDC system. In the old DB
system, the effect of the growing female labour participation had a larger impact on
pensions, as the benefits in the old system depend on the 15 best out of 30 years,
and not on the whole career as in the reformed NDC system.
The minimum top-up guarantee pension (including the housing supplement)
will grow from 0.5 percent in 2019 to 1.0 of GDP in 2070, as a result of
decreasing replacement rates from earnings-related pensions, which in turn is the
consequence of longevity increasing more than the retirement age. Compared to
AR2018 the increase in the minimum pensions will be somewhat lower due to a
lower number of immigrants, who often have low earnings-related pensions
18 (47)
because of short and fragmented work careers. Note that the guarantee pension
is indexed with average earnings from 2024, despite being price indexed in the
legislation. The price indexation rules of the guarantee pension have not been
changed since the system was introduced in 2003. The income indexation from
2024 might therefore be too generous.
Table 7. Projected gross public pension spending by scheme (% of GDP)

peak change 2019-
Pension scheme 2019 2030 2040 2050 2060 2070 value peak year 2070
Total public pensions 7.6 7.4 7.1 7.0 7.4 7.5 8.4 2020 -0.1
Old-age and early pensions 6.7 6.5 6.2 6.2 6.6 6.7 7.4 2020 0.1
Earnings-related 6.2 6.0 5.6 5.4 5.7 5.7 6.9 2020 -0.5
Minimum guarantee pension 0.5 0.5 0.6 0.8 0.9 1.0 1.0 2070 0.5
Disability pensions 0.76 0.78 0.80 0.84 0.76 0.76 0.8 2052 0.0
Survivors' pensions 0.22 0.10 0.03 0.02 0.02 0.02 0.24 2020 -0.2
The number of individuals with a disability pension started to increase sharply in

2003. After a peak of nearly 556 000 individuals in the spring of 2007, the yearly
average went down to 368 000 in 2013 because of both higher outflow and lower
inflow, i.e. a reduction of 1/3 from the peak. Between 2013 and 2019 the
number of disability pensioners has continued to decrease and will continue to
do so the next 20 years of the projections, which is in line with recent forecasts
from the Swedish Social Insurance Agency.19 In the calculations, a prudent
approach has been chosen, as the low inflow might not be sustainable.
Therefore, the inflow to disability pension is aligned to outcome and recent
budget forecasts.20 The risk to be disabled is then kept constant for the rest of
the projection period, resulting in an increase in the number of disability
pensioners after 2040, and a total increase of 16.6% between 2019 and 2070 due
to an ageing population.21
The widow’s pension is being phased out and replaced by a new, temporary
and gender-neutral adjustment allowance. Even if the widow’s pension only
affects couples which were married or had common children before 1989,
benefits will continue to be paid out for several decades, but in rapidly decreasing
numbers. In the end of the projection period, only the relatively small temporary
19
The age limit 64 years is assumed to remain unchanged throughout the projection period.
20
The projection is judgemental. For the years 2018 - 2024 the probability of inflow (as a share of the popu lation at
risk) is assumed to revert gradually to the average for the period 2008 - 2018.
21
The calculation of the disability pension is sensitive to the inflow into the system and the choice of reference
period.
19 (47)
adjustment allowance remains, which is paid out for 12 months to surviving
spouses younger than 65, and mainly to families with children.
3.3 Description of the main driving forces

To explain the development of the ratio of pensions to GDP, this ratio is
decomposed into its main driving factors.22 The demographic increase in the
dependency ratio contributes to a rise in public pension expenditure. The continued
rise of the dependency ratio is due to an increase in longevity but mitigated by
the fact that net migration and fertility rates are positive, which make the working
age population continue to grow during the entire projection period.
Table 8. Factors behind the change in public pension expenditures between 2019 and
2070 (in percentage points of GDP) - pensioners
2019-30 2030-40 2040-50 2050-60 2060-70 2019-70
Public pensions to GDP -0.3 -0.3 0.0 0.4 0.1 -0.1

Dependency ratio effect 0.7 0.5 0.3 0.9 0.2 2.6
Coverage ratio effect* 0.0 -0.1 0.1 0.0 0.1 0.1
Coverage ratio old-age 0.2 0.0 0.1 0.2 0.1 0.6
Coverage ratio early-age -0.5 -0.6 0.1 -0.2 0.1 -1.0
Cohort effect -0.7 -0.4 0.0 -1.0 0.1 -2.0
Benefit ratio effect -0.9 -0.7 -0.5 -0.4 -0.3 -2.7
Labour market effect -0.1 0.0 0.0 -0.1 0.1 -0.1
Employment ratio effect -0.1 0.0 0.0 0.0 0.0 -0.1
Labour intensity effect 0.0 0.0 0.0 0.0 0.0 0.0
Career shift effect 0.0 0.0 0.0 0.0 0.0 0.0
Residual 0.0 0.0 0.0 0.0 0.0 -0.1
* Subcomponents of the coverage ratio effect do not add up necessarily.
The small increase in the coverage ratio is due to high migration, which will result in
more cross-border pensioners, often with shorter than average contribution
periods. The increase is more prominent in the older age group, for the 65 years
and older, but negative in the early ages, for the 50-64 years old.
The employment ratio and especially the benefit ratio act as offsetting factors on the
demography. Several factors contribute to the fall in the benefit ratio. The
reformed NDC income pension system works on an actuarial basis. At the time
of retirement an annuity is calculated by dividing the individual’s account value
by a divisor reflecting unisex life expectancy at the specific date of retirement,
thus offsetting the effect of the increased longevity. Another important factor is
22
See Annex 3 for definitions and technical details about the decomposition.
20 (47)
the reclassification of the premium pension from the government to the private
sector, which leads to a lower public but a higher private benefit ratio, see table 6.
In addition, the phasing out of the widow’s pension also contributes.
Evolution of the benefit and the replacement and ratios

The evolution of the benefit ratio (BR) and the replacement rate (RR), i.e. the
first pension of those who retire a given year over an economy wide average
wage, is reported in table 9.23 The RR and BR from public pensions will decrease.
The assumption of an unchanged effective retirement age for both women and
men in combination with the increase in the longevity will make the duration of
the retirement increase with approximately 4 years for men and 4.5 years for
women until 2070. This means that the annuity divisors used in the NDC, but
also in other actuarial pension systems, will increase and the yearly pension
payments will be correspondingly lower. If the conservative assumption of a
fixed pension age is dropped, and people will work longer when life expectancy
at 65 increases, the fall in BR and RR will be smaller or eliminated.
Table 9. Replacement rate at retirement (RR). benefit ratio (BR) and coverage by pension
scheme (in %)
change
2019-2070
2019 2030 2040 2050 2060 2070 (pps)
Public scheme (BR) 36% 32% 29% 27% 26% 25% -11%
Coverage 100.0 100.0 100.0 100.0 100.0 100.0 0.0
Public scheme: old-age earnings related (BR) 33% 29% 25% 23% 22% 20% -13%
Public scheme: old-age earnings related (RR) 34% 35% 34% 33% 31% 30% -4%
Coverage 87.0 90.0 90.8 90.9 92.1 92.1 5.2
Private occupational scheme (BR) 20% 14% 10% 8% 5% 4% -16%
Private occupational scheme (RR) 20% 18% 17% 11% 13% 14% -6%
Coverage 75.3 79.0 82.5 85.7 88.3 88.9 13.6
Private individual schemes (BR) 7% 5% 5% 5% 5% 5% -3%
Private individual schemes (RR) 9% 8% 7% 6% 6% 7% -2%
Coverage 106.7 126.5 125.6 117.5 108.4 100.0 -6.6
Total benefit ratio 54% 46% 41% 38% 35% 33% -21%
Total replacement rate 42% 43% 41% 38% 37% 36% -6%
As the previous DB system is being phased out and replaced by the NDC part of
the reformed system, the public RR will decrease significantly. This is counter-
23
The replacement rate (RR) is defined as the first pension of retirees a given year compared to the economy -wide
average wage for individual’s aged 60 64 years the same year. Only domestic pensioners are counted in the RR,
but all pensioners in the BR.
21 (47)
acted by an increase in the second part of the reformed system, the privately
classified premium pension. Still, the total BR and the RR will decrease
significantly over the projection period.
On aggregate pensions are indexed with average earnings. However, for the
individual the replacement rate from the public income pension will become
lower when the individual grows older, as payments from the NDC system are
frontloaded, i.e. the pensioners receive a share of the real economic growth in
advance. Technically this is achieved by calculating the annuity factor with a 1.6
per cent discount factor, resulting in a higher initial benefit than a simple
application of the actuarial principles would give. The indexation is then reduced
during the pay-out time by subtracting 1.6 per cent from the yearly income
indexation, see annex 2 for details.
The calculations include pensions to individuals with a Swedish pension living
abroad. Many emigrants have only spent a part of their career in Sweden, and
their Swedish benefits are thus relatively low although they may also have
benefits from other countries. Migrants often move in and out of Sweden several
times. Therefore, the number of pensioners with earnings-related pension (but
not the expenditure) might be over-estimated. Hence, only domestic pensioners
are counted when calculating the RR from public earnings-related pensions. If
pensioners with Swedish pension living abroad were included, the RR would be
lower than the numbers presented in table 9.
In addition, the replacement rate from occupational pensions is expected to

decrease in the future, due to both higher longevity and the growing importance of
funded defined contribution components and the cautious interest assumptions. In
the calculations, only occupational pensions to individuals who receive public pension
are considered. Thus, different types of early retirement option programs in collective
agreements, i.e. supplements to the disability pensions, etc. are not included.
Sometimes a part of the occupational and the private voluntary DC-pensions

is paid out during a fixed time period, usually the first five years of retirement,
resulting in a higher average RR at the time of retirement and a shift down after 5
years. The development of the BR and the RR for private pensioners depends on
two offsetting factors. The mandatory private premium pension will increase
rapidly as the system is maturing. As the premium pension is funded and earns a
market rate of return, the outcome is sensitive to the interest rate assumptions. If
its higher than the income growth, the effect of increasing longevity is mitigated
and vice versa. In these calculations the interest rate has been revised downward
compared to the AR2018 calculations.
22 (47)
On the other hand, the replacement rate for private voluntary pensions will
fall to close to zero due to the abolished tax-deductions for private pension
savings for wage earners. The effect of the latter will be higher on the RR than
the BR as most recipients choose to get their saving paid out during a limited
time-period, normally 5-years. After this period, the RR will be substantially
lower but the BR essentially unchanged. The phasing out of the voluntary part of
private individual pensions also explain the decrease in the coverage ratio from
107% to 100%. At the same time as fewer pensioners will get voluntary private
pension, more pensioners will receive a premium pension, as the latter system is
mandatory and covers all taxpayers in Sweden and beneficiaries living abroad.
System dependency ratio

The number of pensioners is expected to increase the whole projection period. In
addition, employment is projected to increase until 2070, but in a slower pace,
resulting in an increase in the pension system dependency ratio (SDR) by 21.5
percentage points, see table 10. The old-age dependency ratio is expected to
increase with 14.6 percentage points, resulting in a more or less stable system
efficiency quota.
Table 10. System dependency ratio and old-age dependency ratio

change
2019-
2019 2030 2040 2050 2060 2070 2070
Number of pensioners (thousand) (I) 2 638 3 068 3 396 3 738 4 219 4 504 1 866
Employment (thousand) (II) 5133 5556 5809 5986 6062 6176 1043
Pension system dependency ratio (SDR) (I)/(II) 51.4 55.2 58.5 62.4 69.6 72.9 21.5
Number of people aged 65+ (thousand) (III) 2 051 2 384 2 674 2 891 3 257 3 441 1 390
Working age population 20-64 (thousand) (IV) 5833 6205 6489 6716 6730 6908 1075
Old-age dependency ratio (OADR) (III)/(IV) 35.2 38.4 41.2 43.0 48.4 49.8 14.6
System efficiency (SDR/OADR) 1.5 1.4 1.4 1.5 1.4 1.5 0.0
Inactivity
The total number of pensioners by age group has been divided by the inactive
population in the same age group, i.e. the population minus labour supply in the
actual age group, to analyse the coverage ratio and the consistency between the
labour force, demographics and the pension projections. For the age groups
below 65 the ratio falls over time due to fewer disability pensioners and a better
labour market. For older age groups there will be an increase due to the growing
participation among retired and a growing number of Swedish pensioners living
abroad. This increase is most pronounced after 2040.
23 (47)
Table 11A. Pensioners (public scheme) to inactive population ratio by age group (%)
2019 2030 2040 2050 2060 2070
Age group -54 5.2 4.8 5.0 4.7 4.8 4.8

Age group 55-59 100.2 77.5 72.5 72.9 74.5 74.4
Age group 60-64 128.5 104.0 94.4 93.0 90.0 95.0
Age group 65-69 145.6 144.8 146.7 151.0 149.4 150.1
Age group 70-74 126.2 130.1 124.4 129.5 135.2 129.2
Age group 75+ 107.2 111.3 113.9 114.3 117.2 120.5
The number of pensioners as a share of both the total and the inactive
population is above 100 % for all age groups above 65 years, see Tables 11a and
11b. This is because the pensioners numbers include pensioners living abroad,
whereas the population only include people living in Sweden.24 Another reason is
that pensioners are working, and part of the labour force, even if they receive a
pension benefit at the same time.25
Table 11b 3. Pensioners (public schemes) to total population ratio by age group (%)
2019 2030 2040 2050 2060 2070
Age group -54 2.0 1.8 1.8 1.8 1.8 1.8

Age group 55-59 11.0 9.1 9.2 9.2 9.2 9.3
Age group 60-64 33.6 30.8 28.3 28.0 27.2 28.5
Age group 65-69 109.5 108.6 110.1 113.7 112.9 113.0
Age group 70-74 112.3 117.7 112.4 117.0 122.0 116.8
Age group 75+ 107.2 111.3 113.9 114.3 117.2 120.5
The pensioners to inactive ratio for women is similar to the ratio in the
population as a whole, but somewhat lower, particularly in ages groups 60-69, see
11a and 12a. The difference is smaller for the pensioners to total population
numbers in tables 11b and 12b. A somewhat technical explanation for the bigger
difference between the female and overall pensioners to inactive ratio is that the
ratios in tables 11 and 12 are a mix of two sources that is not fully consistent, i.e.
exogenous assumptions (number of inactive people) from the CSM, and
endogenous numbers from the pension model (number of pensioners).
24
If cross border pensioners are excluded the ratio in the age group 65 -69 years will decrease.
25
Many pensioners, particularly in the ages below 70, also have earned income, which is expected to become more
common in the future.
24 (47)
Table 12A. Female pensioners (public scheme) to inactive population ratio by age group
(%)
2019 2030 2040 2050 2060 2070
Age group -54 5.7 5.2 5.3 5.2 5.3 5.1

Age group 55-59 101.2 77.2 69.5 73.6 73.1 78.6
Age group 60-64 114.6 85.4 78.2 79.2 74.3 82.2
Age group 65-69 144.1 139.1 140.5 142.5 140.5 140.0
Age group 70-74 128.4 129.5 118.8 122.1 129.7 122.2
Age group 75+ 108.0 115.3 117.7 115.5 116.3 119.4
Table 12b Female pensioners (public scheme) to total population ratio by age group
(%)
2019 2030 2040 2050 2060 2070
Age group -54 2.2 2.0 2.0 2.0 2.0 1.9

Age group 55-59 12.8 10.0 10.1 10.0 9.7 10.5
Age group 60-64 33.9 29.9 27.7 28.1 26.5 29.0
Age group 65-69 114.5 110.6 110.8 113.2 111.6 110.6
Age group 70-74 116.5 122.5 112.0 115.2 122.3 115.4
Age group 75+ 108.0 115.3 117.7 115.5 116.3 119.4
New public expenditure

In Table 13a-13c new earnings-related pension expenditure in the public NDC
system is reported. Note that the numbers in the tables excludes pensioners with
Swedish pension rights living abroad.
Table 13a. 3. Projected and disaggregated new public pension expenditure (old-age
and early earnings-related pensions)
New old-age earnings-related pensions 2019 2030 2040 2050 2060 2070
Projected new pension expenditure (million Euro)* 1 477.5 2 204.2 2 655.0 4 127.6 5 534.0 8 207.3
I. Number of new pensions (1000) 111.3 128.4 122.3 143.9 139.9 146.9
II. Average contributory period (years) 40.5 40.6 38.5 40.2 40.7 41.5
III. Average accrual rate (%) 0.92 0.90 0.87 0.84 0.82 0.80
Notional-accounts contribution rate (c) 0.2 0.2 0.2 0.2 0.2 0.2
Annuity factor (A) 17.3 17.7 18.3 19.0 19.5 20.1
IV. Monthly average pensionable earnings (1000 Euro) 3.0 3.9 5.4 7.1 9.9 14.1
V. Sustainability/adjustment factors 1.0 1.0 1.0 1.0 1.0 1.0
VI. Average number of months paid the first year 12.0 12.0 12.0 12.0 12.0 12.0
(Monthly average pensionable earnings) / (monthly economy-wide 91% 92% 91% 84% 83% 83%
average wage)
*New pension expenditure equals the product of I. II. III. IV. V & VI
25 (47)
The shorter contributory period for women initially is the result of their
historically lower participation rates. The contributory period for women is
expected to increase over time, with a marked reduction around 2040. For men
the contributory period is more or less constant in the long run, but with an even
more pronounced reduction at the middle of the projection. The reason for the
difference in long trends is the increasing employment rate for women and the
stable for men, whereas the mid-projection reduction for both sexes is due the
large number of immigrants, with relatively shorter working careers, which came
to Sweden around 2015. More male than female immigrants explain why the
reduction is bigger for men. Note that individuals also earn non-contributory
pension rights for e.g. studies and parental leave, and that the average
contributory period therefore exceeds the average working career.
The average accrual rate is more or less the same for men and women, but the
average pensionable earnings are some 10 percent higher for men than for women,
which explains the difference in new pension expenditure per new pension and the
benefit ratio between women and men of roughly the same magnitude.
Table 13b 3. Disaggregated new public pension expenditure (old-age and early
earnings-related pensions) - MEN
Projected new pension expenditure (million Euro)* 799.2 1 183.7 1 394.3 2 125.3 2 952.4 4 334.3
Annuity factor (A) 17.4 17.8 18.4 19.1 19.5 20.2
IV. Monthly average pensionable earnings (1000
EUR) 3.1 4.1 5.6 7.5 10.5 14.9
(Monthly average pensionable earnings) /
(monthly economy-wide average wage) 97% 98% 95% 89% 88% 88%
Technically the base for the calculation of new pension expenditure is the
accumulated pension wealth, which is the sum of “implicit pensionable earnings”,
which consist of earlier credited pensionable income, pension entitlements credited
for income replacement social insurances, inheritance gains and possibly reduction
in case of an automatic balancing. The pensionable earnings are also adjusted for
26 (47)
the phasing in of the reformed NDC system until 2018, depending on what year
the individual was born.26
There is therefore no straightforward relation between the growth of the “implicit

pensionable earnings” and the average income growth. In the tables 14a-14d the
sustainability factor is set to 1, because the effect of the balancing is already
counted for implicitly in pension payments and pension wealth.27 In the
computations the average number of months paid out during the first year is 12,
but in reality the number is close to 6.
Table 13c Disaggregated new public pension expenditure (old-age and early
earnings-related pensions) - WOMEN
Projected new pension expenditure (million Euro)* 699.3 1 021.5 1 338.5 1 927.6 2 627.6 3 929.2
Annuity factor (A) 17.2 17.6 18.2 18.9 19.4 20.0
IV. Monthly average pensionable earnings (1000
EUR) 2.8 3.7 5.2 6.8 9.5 13.4
(Monthly average pensionable earnings) /
(monthly economy-wide average wage) 86% 87% 87% 81% 80% 79%
3.4 Financing of the pension system

From 2019 to 2070 the number of pensioners will increase by some 71 %.
During the same period the number of contributors will grow only by some
18 % and employment by some 20 %. The combined effect of this is that the
support ratio, i.e. the number of contributors per employee, and contributions as
a share of GDP, will remain approx. unchanged.
The number of pensioners substantially exceeds the number of individuals
older than 65 as the calculations cover individuals with Swedish pensions living
abroad as well as disability pensioners and survivors younger than 65. The
number of contributors also exceeds the number of employed, as contributions
are paid by the central government to cover pension entitlements for
26
Thus, note that the method of deriving the pensionable earnings makes the identities hold by definition.
27
The balance indexation was terminated in 2018 and not applied again in the calculations after this.
27 (47)
unemployment, sickness, disability and parental leave. Self-employed individuals
also participate in the system.
Table 14. Revenue from contribution (Millions), number of contributors in the public
scheme (in 1000), total employment (in 1000) and related ratios (%)
Public employees Private employees Self-employed
Contribution base Pensionable income Pensionable income Pensionable income

Contribution rate/contribution 18.5% 18.5% 18.5%
10.21% (including Premium 10.21% (including Premium
Employer Pension) Pension) 17.2%
Employee 7% (including Premium Pension) 7% (including Premium Pension)
Employer contribution' for social Employer contribution' for social Employer contribution' for social
State* insurance insurance insurance
Other revenues* Buffer funds Buffer funds Buffer funds
Maximum contribution 8.07 income base amounts 8.07 income base amounts 8.07 income base amounts
Minimum contribution 0 0 0
*only legislated contributions are reported
Note: The income base amount is SEK 66 800 (approx. 6300 €) in 2017. Hence. the contribution ceiling is SEK 539 100 or approx. 50 900 €. The contribution are
calculated on earnings net of the employee contribution. i.e. (0.07+0.1021)/(1-0.07) = 0.185
Table 15. Revenue from contribution (%GDP) number of contributors in the public
scheme (in 1000). total employment (in 1000) and related ratios (%)
change
2019-2070
2019 2030 2040 2050 2060 2070 (pps)
Public pension contributions (%GDP) 5.7 5.9 5.9 6.0 6.0 6.1 0.3
Employer contributions 2.7 2.9 3.0 3.1 3.2 3.3 0.5
Employee contributions 2.6 2.5 2.5 2.5 2.4 2.4 -0.1
State contribution* 0.4 0.4 0.4 0.4 0.4 0.4 -0.1
Other revenues* 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Number of contributors (I) (1000) 5 848 6 183 6 474 6 692 6 738 6 918 1 070
Employment (II) (1000) 5 133 5 556 5 809 5 986 6 062 6 176 1 043
(I) / (II) 1.14 1.11 1.11 1.12 1.11 1.12 -0.02
*only legislated contributions are reported
3.5 Pension assets and return on assets

There is a buffer fund to the public old-age pension system which takes care of
yearly differences between pension payments and contributions. In 2019 the
fund amounted to some 30.2 percent of GDP. The assets of the buffer fund are
invested in interest bearing and non-interest-bearing assets, which since 2000
have had an average annual return of 5.8 percent including the value increase of
non-interest-bearing assets.
28 (47)
In the calculations the average yearly return is assumed to be in line with
AWG:s commonly agreed interest rate assumptions. This assumption is cautious
as most of the assets in the fund is non-interest bearing and has in the past had a
higher return than market interest rates.
Table 16 Pension assets and reserves (% GDP) and return on assets (%)
average average average
1999- 2009- 2019-
2008 2018 2019 2030 2040 2050 2060 2070 2070
Public pension scheme

assets and reserves 26.1 30.2 30.2 23.2 22.3 28.6 35.8 42.2 29.3
average return 3.2 8.1 1,8 0,9 2,4 4,0 4,0 4,0 2.6
3.6 Sensitivity analysis

The sensitivity scenarios can be divided into four groups:
1 Productivity (Higher productivity / TFP risk)
2 Demographics (Higher life expectancy, Higher / Lower migration, Lower
fertility)
3 Labour market (Higher employment, Older workers, Permanent /
Temporary shock)
4 Policy risk (Linking the retirement age, Constant benefit ratio)
In the Swedish case, the unchanged retirement age scenario is the same as the
baseline.
In the first group of scenarios the effects are limited as pensions and GDP will
grow in the same pace, and all systems (tax brackets, ceilings etc.) are income
indexed in the calculations. The outcome for public pensions in the TFP risk
scenario and the higher productivity scenario are more or less identical to the
baseline scenario as a share of GDP. The small difference in total pension
expenditure, somewhat lower pensions as a share of GDP in the TFP scenario
and vice versa, is due to the unchanged interest rate assumptions in all three
scenarios, Baseline and high/low productivity, which gives pension expenditure a
negative correlation to productivity induced growth.
In the second group demographic scenarios sensitivity is more evident. The

biggest difference is in the Lower fertility scenario where the number of pensioners
will grow faster than the labour force. Also, in the Higher/Lower migration
scenarios the sensitivity is large. The effects are amplified by changes in the
contributory period, as immigrants often have shorter careers. In the higher life
29 (47)
expectancy scenario, the effects are explained by the fact that public earnings-
related pensions, as well as occupational and private funded pensions, are
adjusted on an actuarial basis, thus compensating for the increase in the
longevity. When the actuarially calculated pensions are decreasing, the minimum
top-up guarantee pension and the housing supplement will increase, thus
explaining the increase in the pensions to GDP ratio.
In the third group, the scenarios with higher employment lower the pension
to GDP ratio as higher employment result in higher production, but also in
higher earnings-related pensions after some years. This lowers the dependency of
minimum pension. In the older workers scenario, the difference compared to the
baseline is growing fast during the first decades. After this, the effect will
gradually become smaller, as the extra working years will lead to higher earnings-
related pensions for the individuals who are prolonging their working lives.
Whereas the temporary shock scenario only lowers pensions temporarily as a
share of GDP, the permanent adverse structural shock scenario has a somewhat
larger and permanent negative effect on the pensions to GDP ratio.
In the fourth group with policy scenarios, the linking the retirement age
scenario is modelled on an upcoming reform of the pension system, see box in
section 1.2 above. In this scenario, the retirement age is linked to the increase in
life expectancy. At the same time as all age limits in the pension system and
related social insurances are indexed with two thirds of the increase in
longevity28, this will cause a higher GDP and earnings-related pensions and lower
dependency of non-contributory pensions. The effect is strongest at the
beginning when people start working longer at the same time as no one retires.
After some years, the prolonged working life will lead to higher pensions, and the
difference compared to the baseline becomes smaller. However, as long as life
expectancy is growing and retirement delayed, the pensions to GDP ratio will
remain lower. Finally, in the scenario where the old age earnings related benefit
ratio is not allowed to fall below 90 percent of its value in 2019, pension
expenditure will increase by more than 3 percentage points of GDP in 2070.
28
More details about the method can be found in section 4.4
30 (47)
Table 17. 3. Public and total pension expenditure under different scenarios (p.p.
deviation from the baseline)
Public pension expenditure 2019 2030 2040 2050 2060 2070 change 2019-2070 (pps)
Baseline (% GDP) 7,6 7,4 7,0 7,0 7,4 7,5 -0,1

Higher life expectancy at birth (+2y) 0,0 0,1 0,1 0,1 0,2 0,2 0,2
Higher migration (+33%) 0,0 -0,1 -0,3 -0,3 -0,4 -0,3 -0,3
Lower migration (-33%) 0,0 0,2 0,3 0,4 0,5 0,4 0,4
Lower fertility (-20%) 0,0 0,0 0,1 0,3 0,6 1,0 1,0
Higher employment rate of older workers (+10 pps.) 0,0 -0,2 -0,2 -0,2 -0,3 -0,2 -0,2
Higher TFP growth (convergence to 1.2%) 0,0 0,0 0,0 0,0 0,0 0,0 0,0
TFP risk scenario (convergence to 0.8%) 0,0 0,0 0,0 0,0 0,0 0,0 0,0
Policy scenario: linking retirement age to change in life 0,0 -0,3 -0,3 -0,4 -0,5 -0,7 -0,7
expectancy
Policy scenario: unchanged retirement age 0,0 0,0 0,0 0,0 0,0 0,0 0,0
Policy scenario: offset declining pension benefit ratio 0,0 0,2 1,2 2,0 2,8 3,4 3,4
Lagged recovery scenario 0,0 0,1 0,0 0,0 0,0 0,0 0,0
Adverse structural scenario 0,0 0,2 0,3 0,2 0,3 0,3 0,3
change 2019-2070
Total pension expenditure 2019 2030 2040 2050 2060 2070 (pps)
Baseline (% GDP) 11,6 10,7 10,0 9,8 10,0 9,9 -1,7
Higher life expectancy at birth (+2y) 0,0 0,1 0,1 0,2 0,2 0,2 0,2
Higher migration (+33%) 0,0 -0,2 -0,3 -0,5 -0,5 -0,4 -0,4
Lower migration (-33%) 0,0 0,2 0,4 0,5 0,6 0,5 0,5
Lower fertility (-20%) 0,0 0,0 0,1 0,4 0,8 1,2 1,2
Higher employment rate of older workers (+10 pps.) 0,0 -0,3 -0,3 -0,3 -0,3 -0,3 -0,3
Higher TFP growth (convergence to 1.2%) 0,0 0,0 -0,1 -0,1 -0,2 -0,2 -0,2
TFP risk scenario (convergence to 0.8%) 0,0 0,0 0,1 0,1 0,2 0,2 0,2
Policy scenario: linking retirement age to change in life 0,0 -0,2 -0,3 -0,3 -0,3 -0,6 -0,6
expectancy
Policy scenario: unchanged retirement age 0,0 0,0 0,0 0,0 0,0 0,0 0,0
Policy scenario: offset declining pension benefit ratio 0,0 0,2 1,2 2,0 2,8 3,4 3,4
Lagged recovery scenario 0,0 0,1 0,1 0,0 0,0 0,0 0,0
Adverse structural scenario 0,0 0,4 0,4 0,5 0,6 0,6 0,6
3.7 Description of the changes in comparison with earlier

projections
Compared to the 2018 projections the public pensions to GDP ratio will be
slightly higher, even if the contributions from the different components are
similar. The dependency ratio will increase the pension to GDP ratio, whereas a
lower benefit ratio will counter-act this effect.
31 (47)
Compared to AWG18 the benefit ratio now is slightly less negative, which is
explained by the revision upward of the average pensions.29 The average pension
is dependent on the average contributory period, which in its turn depends on
the number of people who come to and leave Sweden. Hence, the division of the
net migration assumption into inflows and outflows is important for the results.
In these calculations, emigration from Sweden is more realistically dependent on
earlier immigration to Sweden, which means that the number of people who
leave Sweden now is higher and increasing to nearly 58 000 persons in 2070.
Larger in- and outflows for a given net migration will result in a shorter average
contributory period, all else equal, and a smaller average pension balance at the
time of retirement.
Table 18. Overall change in public pension expenditure to GDP under the2006. 2009.
2012 and 2015 projection exercises
Residual (incl.
Public pension Dependency Coverage ratio Benefit ratio Labour market interaction
expenditure ratio effect effect effect effect effect)
2006 Ageing Report (2004-2050) 0,9 4,8 -0,2 -2,8 -0,6 -0,2
2009 Ageing Report (2007-2060) -0,1 5,6 -0,4 -4,3 -0,4 -0,6
2012 Ageing Report (2010-2060) 0,6 5,0 -0,8 -2,7 -0,5 -0,4
2015 Ageing Report (2013-2060) -1,4 2,6 0,2 -3,7 -0,4 -0,1
2018 Ageing Report (2016-2070) -1,2 2,4 0,6 -4,0 -0,1 -0,1
2021 Ageing Report (2019-2070) -0,1 2,6 0,1 -2,7 -0,1 -0,1
- The disaggregation for 2006/2009/2012 is on the basis of pensions; for 2015/2018/2021 it is on the basis of pensioners.
- The projection horizon has been extended over consecutive Ageing Reports. limiting comparability over time.
The decomposition in table 19b is somewhat rough. The change due to the
decreasing disability and the rest of the differences are classified as Change in
assumptions and calculated residually. The changes in the assumptions include
both the demographic and economic assumptions. Regarding the revised
disability pension projection, the same methodology was used as in AWG18, see
also section 3.2.30 The small Policy-related change in table 19b is due to the
introduction the new Income Pension Supplement.
29
Between the projections in 2006 and 2009 the premium pension was reclassified from the public to the private
sector.
30
The long-run average was calculated on the reference period 2006 -2014.
32 (47)
Table 19a. Breakdown of the difference between the 2018 projections and outcome figures
(% of GDP)
2016 2017 2018 2019
Ageing Report 2018 projections 8,2 8,0 7,9 7,7
Assumptions (pps of GDP) -0,1 -0,1 -0,1 -0,1
Coverage of projections (pps of GDP) 0,0 0,0 0,0 0,0
Constant policy impact (pps of GDP) 0,0 0,0 0,0 0,0
Policy-related impact (pps of GDP) 0,0 0,0 0,0 0,0
Actual public pension expenditure 8,1 8,0 7,8 7,6
Table 19b. Breakdown of the difference between the 2018 and the new public pension
projection (% of GDP)
2019 2030 2040 2050 2060 2070
Ageing Report 2018 7,7 7,2 6,8 6,6 7,0 7,0
projections
Change in assumptions (pps -0,1 0,1 0,1 0,3 0,4 0,5
of GDP)
Improvement in the coverage 0,0 0,0 0,0 0,0 0,0 0,0
or in the modelling (pps of
GDP)
Change in the interpretation 0,0 0,0 0,0 0,0 0,0 0,0
of constant policy (pps of
GDP)
Policy-related changes (pps 0,0 0,1 0,1 0,1 0,1 0,1
of GDP)
New projections 7,6 7,4 7,0 7,0 7,4 7,5
4. Description of the pension projection model
4.1 Introduction
As in the previous exercises, the projections have been made with the dynamic
microsimulation model SESIM. Originally the model was developed at the
Swedish Ministry of Finance in close cooperation with researchers at Swedish
universities. The model has been further developed at the Ministry of Health and
Social affairs.31 SESIM is a general micro-simulation model that can be used for a
broad set of analyses. The model has for example been used for analyses of
health amongst elderly.32 It has also been used by the Pension age committee,
and in the reviews of the pension system.
All the AWG projections and model simulations have been made at the
Ministry of Health and Social Affairs. No peer review etc. has been done
nationally. For the period until 2021, the results have been validated against
National Accounts outcome and projections from The Swedish Pension Agency.
The results have also been validated against the AWG demographic and
31
A detailed documentation can be found in Flood et.al [20 12], or at www.sesim.org.
32
The future need for care - Results from the LEV project, Ministry of Health and Social Affairs, 2010.
33 (47)
macroeconomic assumptions, as well as with the previous round of AWG
pension projections.
4.2 Overview of the model

SESIM is a conventional dynamic microsimulation model in the sense that the
variables are updated in a yearly sequence. The initial sample of the Swedish
population includes approximately 320 000 individuals and is from 1999.33 All
individuals are subject to a large number of possible life events, such as education,
marriage, parenthood, work or retirement.
SESIM has a recursive structure, where the modules are executed in a
predetermined order, see figure 6 below. The unit of simulation is the individual,
but households are also important, as many of the simulated processes refer to
household as well as individual properties. The simulation sequence starts with a
set of demographic modules (mortality, adoption, migration, household
formation and dissolution, disability pension, rehabilitation and regional
mobility). Next in the sequence calculations relating to education and the labour
market (unemployment, employment etc.) are executed. In order to capture the
demographic features of the Eurostat projection and the labour market outcome
of the Cohort Simulation Model, alignment (or calibration) procedures are
necessary.
Every individual is assigned one out of nine possible statuses every specific year.34
Every status is related to a main source of income. Employment results in earnings;
retirement brings pensions etc. For employed individuals an estimated earnings
equation is used to determine the income. For other statuses, for example
unemployment, current rules are applied to calculate the income. Next capital
income from financial assets and housing is calculated.35
Then transfers and pensions will be calculated. The rules for all types of
pensions are implemented in relevant detail (i.e. public, occupational and private
pensions). All persons are assumed to claim full time pension, since the model
cannot handle part time retirement (or any other mixed statuses). Pensioners can
also earn work income and pension simultaneous. Also, the automatic balancing
mechanism is implemented in the model, but not used in the AWG calculations
after the medium-term, as it will not affect the results in the long run (but may
affect the general picture if pensions are balanced a single year).
33
If necessary, the sample can be extended
34
The different statuses are: Child (0-15 years old), Old-age pension, Student, Disability pensioner, on parental
leave, Unemployed, Employed, Miscellaneous, emigrated (individuals living abroad with Swedish pensions rights).
35
Four separate assets are considered in the household portf olio: financial wealth, own homes, other real wealth
and private tax-deductible pension savings.
34 (47)
SESIM also allows for a more extensive definition of income since the value
of various non-cash benefits can be included, e.g. education, childcare and health
care.
In the AWG projections, the module for the labour market is central,
especially employment, unemployment, retirement or disability. These functions
are statistical rather than economic, in the sense that the probability of an event
is influenced by individual characteristics, but not by financial incentives. For
example, the probability of retirement is a function of the individual's education,
age, gender, income etc., but not of the marginal tax. One important feature
reflected in the retirement model is that spouses tend to coordinate their
retirement.
There are several ways of simulating the date of retirement. The number of
new pensioners is aligned by picking the individuals with the highest estimated
probability to retire. People retire according to an observed age distribution.
Most people retire at 65. Note that the average pension age is endogenously
determined, although the average effective retirement age is aligned to track the
AWG labour market assumptions. Some pensioners continue to work after they
started to draw their pension and are thus counted as employed in LFS terms.
35 (47)
Graph 6. Structure of SESIM
Demography Education
− Mortality − Dropout from upper secondary education
− Adoption − From upper secondary to university
− Migration − Dropout from university
− Fertility − From labor market to university
− Children leaving home − From labor market to adult education
− Cohabitation − From adult education to university
− Separation
− Disability
− Rehabilitation
Labour Market
− Unemployment
− Employment
− Miscellaneous status
Model population
− Labor market sector
at time t
− Income generation (earnings)
Next year
(t = t + 1) Wealth & Housing
− Financial wealth
− Private pension savings
Model population − Real wealth
at time t + 1 − Income of capital
Noncash benefits Taxes & Transfers

− Child care − Student loans and allowances
− Compulsory education − Income tax
− Upper secondary education − Real estate tax
− University − Capital income tax
− Adult education − Wealth tax
− Labor market activities − Maintenance
− Old age care − Child allowance
− Health care − Housing allowance
− Medication − Social assistance
− Old age pension
− Disability pension
4.3 Data Issues

The primary database for SESIM, both for the estimation of the statistical
models and for the creation of the base population, is the Statistics Sweden
longitudinal database LINDA.36 The database is created from administrative
registers and covers about 3.5 percent of the Swedish population. In 1999, the
primary sample was 308 000 individuals. Including other household members,
the total sample size was 786 000 individuals. The selected individuals are
followed over time and all relevant information is collected. Some information,
for instance accumulation of pension rights, can be traced back as far as 1960.
36
For a more detailed description of the data set, see e.g. Flood et al (2012) and Edin & Fredriksson (2000).
36 (47)
New individuals replace those that disappear from the data set due to death or
emigration in order to maintain the statistical representability.
4.4 Assumptions and simulations

The most important exogenous economic variables in SESIM are inflation, real
income growth per capita, short- and long-term interest rates and return on
stocks. As far as possible, macro numbers are aligned to the AWG assumptions.
In the calculations, the model is adjusted to the average unemployment and
participation rates for five-year groups and sex, so that the simulated population
and labour force tracks the AWG-assumptions. The model results are as far as
possible calibrated to NA levels 2019.
The calculations are made in current prices. The indexation rules are
implemented in detail in the model. All items that are price indexed by
legislation, have been income indexed from 2024 in the projections (for example
the housing allowance for pensioners and the guarantee pension). It is also
assumed that the rate of return on funded assets in the individual public DC
funds and the individual occupational pension accounts will be the same for all
individuals. Upon retirement, individuals get their public DC pension as a fixed
annuity
In the sensitivity scenarios, the pension age is normally based on actual pension
behaviour, and are the same in the Baseline scenario and all other scenarios
except the “linking the retirement age policy scenario”, where the age limits and the
pension behaviour is shifted to increase the effective pension age in line with
longevity. This is done by making people “younger,” i.e. letting older people
adapt to the behaviour of younger. In the policy scenario also, all relevant age
limits are increased with two thirds of the increase in longevity, approximately
keeping the share of adult life spent in retirement constant. This is in line with the
forthcoming pension reform, which was announced in the 2021 budget proposal,
see box on upcoming reform above.37
4.5 Additional information about the modelling

• The exchange rate in the base year 2019 is 10.5891 SEK/Euro, according to
Eurostat, has been used from 2019 and onwards.
37
See https://www.regeringen.se/4a67b3/contentass ets/c1063c03c89247b694cb895aae28741d/hojda -
aldersgranser-i-pensionssystemet-och-i-andra-trygghetssystem_ds-2019_2.pdf.
37 (47)
• A real interest rate of 2 percent is used in the calculations from 2050. From
2019 the outcome is used, and the years 2020 to 2049 are interpolated. No
deductions for costs for administration of the public funds are assumed.
• Some major pension expenditures and public contributions are adjusted to
national account levels until 2019. From 2019 nominally constant add factors
have been used.
• In SESIM, only individuals with a public pension receive an occupational
pension. Thus, different types of collectively agreed early retirement options,
agreed disability pensions etc. are not included. Compared to AWG18 the
occupational pensions are adjusted to NA-levels.
• Only DC contributions to occupational pensions are reported, not DB
contributions that are financed (and funded or insured) by the employers on
an actuarial ground.
• The decomposition of private individual pensions only includes the
mandatory DC premium pension (not the tax-deductible pension savings
that is being phased out).
• The longevity in Sesim is not truncated at 100 years, as in the Eurostat
forecast.
• The population in Sesim is endogenous, but of course based on Eurostats
projections. The population is therefore aligned (calibrated). In order to do
this, both emigration and immigration flows for Swedish born and
individuals born outside Sweden are used. As data about origin is not
reported in Europop2019, the pattern from the latest population projection
from Statistics Sweden is used.
38 (47)
References
• Edin, P. A. and Fredriksson, P., [2000], “LINDA – Longitudinal Individual
Data for Sweden”, Working Paper 2000:19, Uppsala University, Economics
department
• Flood L, Jansson F, Pettersson T, Pettersson T, Sundberg O, Westerberg A
[2012] “The Handbook of SESIM – a Swedish dynamic micro simulation model”
(www.sesim.org)
• Ministry of Health and Social affairs [2014] “Ekonomiska effekter av ett längre
arbetsliv – Långsiktiga ekonomiska effekter av Pensionsålderutredningens förslag”, DS
2014:12. (In Swedish only)
• Swedish Pensions Agency [2020] “Orange Report Annual Report of the Swedish
Pension System 2019”
• Settergren, O. [2001] “The Automatic Balance Mechanism of the Swedish Pension
System1 – a non-technical introduction”, Swedish National Social Insurance
Agency
• Socialdepartementet [february 2019] ”Höjda åldersgränser i pensionssystemet och
andra trygghetssystem”, (In Swedish only)
https://www.regeringen.se/4a67b3/contentassets/c1063c03c89247b694cb895aae2874
1d/hojda-aldersgranser-i-pensionssystemet-och-i-andra-trygghetssystem_ds-2019_2.pdf
39 (47)
Annex 1: Additional reporting
Economy- wide average wage at retirement

The economy-wide average wage is somewhat lower than the average wage at
retirement. The average wage is growing at the same pace as the productivity.
The average gross wage at retirement is calculated as the average for earned
income for individuals 60-64 years old. The growth in the wage at retirement is
basically the same, but small deviations occur as a result of composition effects in
the population and stochastic variation in the model.38
Table A1. Economy wide average wage at retirement (1000 EURO)

% change 2019-
2019 2030 2040 2050 2060 2070 2070
Economy-wide average gross wage at retirement 41.6 55.7 80.5 112.9 158.6 223.8 438.5
Economy-wide average gross wage 38.8 50.7 71.1 101.0 143.3 203.3 424.5
Pensioners vs Pensions
Both the number of pensioners and the number of pensions is calculated in the
microsimulation model. Most people get their pension from more than one
source. The average number of pensions per pensioner varies over the projection
period due to phasing in and out of different systems.
Pension taxation
The taxes are modelled for everyone in line with legislated taxation rules. The
average tax and earnings for different groups are then summed up, and an
implicit tax ratio calculated for every year. The same implicit tax ratios are used
for reporting of all kinds of pension.
Disability pension
The modelling of the disability pension is done with estimated equations for the
in- and outflow from the system. Also programmed rules, e.g. age limits, affect
the calculations. The inflow of pensioners is then aligned to the average
incidence for the reference period 2008-2018. See section 3.2 for more details.
The low inflow result in a gradual decrease, as existing disability pensioners

reaches age 64 and are shifted to old-age pension. Table A.2 shows that disability
38
In the microsimulation model used in the calculations the individual wages are calculated using an estimated
equation, including explaining variables as e.g. age, sex and education.
40 (47)
is increasing with age. According to the legislation no one over age 64 get
disability pension. In the model calculations they are therefore shifted to old-age
pension. Even though this is the normal procedure in real life, as an old age
pension is more generous, it is formally up to the individuals if they want to
apply for old-age pension or not. In the policy scenario, when linking the
retirement age to increases in life expectancy, the age limit for disability, as well
as other relevant age limits, is shifted in line with the indicative pension age.
Table A2. Disability rates by age groups (%)

2019 2030 2040 2050 2060 2070
Age group -54 108 105 113 112 121 122
Age group 55-59 62 59 59 72 65 71
Age group 60-64 89 92 90 105 96 109
Age group 65-69 0 0 0 0 0 0
Age group 70-74 0 0 0 0 0 0
Age group 75+
0 0 0 0 0 0
Survivor pensions
In the microsimulation both individuals and households are modelled. If a
member in a household dies the eligible survivors in the household will get the
survivor benefit. In the calculations the very complicated legal rules are simplified
due to limitations in the model and the data. All amounts are income indexed.
Non-earnings-related minimum pension

The non-earnings-related minimum pension, the guarantee pension, is
endogenously calculated in the microsimulation model, depending on other
sources of income. The guarantee pension is price indexed formally, but in the
AWG projections income indexation is assumed from 2024.
Contributions
The different sources of income are calculated for each individual. The different
contribution rates are then applied for each source of income and summed up.
The different contribution rates are assumed constant over the projection
horizon.
41 (47)
Alternative pension spending decomposition
Table A3. Factors behind the change in public pension expenditure between 2019 and
2070 (percentage points of GDP) – pensions
2019-30 2030-40 2040-50 2050-60 2060-70 2019-70
Public pensions to GDP -0.3 -0.3 0.0 0.4 0.1 -0.1

Dependency ratio effect 0.7 0.5 0.3 0.9 0.2 2.6
Coverage ratio effect 0.1 0.2 0.4 0.3 0.3 1.2
Coverage ratio old-age* 0.3 0.3 0.4 0.4 0.3 1.7
Coverage ratio early-age* -0.5 -0.5 0.0 -0.2 0.1 -1.1
Cohort effect* -0.7 -0.4 0.0 -1.0 0.1 -2.0
Benefit ratio effect -1.0 -1.0 -0.7 -0.6 -0.4 -3.8
Labour market effect -0.1 0.0 0.0 -0.1 0.1 -0.1
Employment ratio effect -0.1 0.0 0.0 0.0 0.0 -0.1
Labour intensity effect 0.0 0.0 0.0 0.0 0.0 0.0
Career shift effect 0.0 0.0 0.0 0.0 0.0 0.0
Residual 0.0 0.0 0.0 0.0 0.0 -0.2
* Subcomponents of the coverage ratio effect do not add up necessarily.
Administrative data on new pensioner

Tables A4 a-c show the age and sex distribution of new entrants into the
different schemes.39 There are no “other” pension schemes in Sweden and the
survivors pension scheme has been closed to new entrants, so that pension
payment from this scheme will be phased out gradually. At ages above 50 years
more women than men receive a disability pension, which is in line with the use
of the public health insurance.
Table A4a. Administrative data on new pensioners (2019) - men

Other (including
Age group All Old-age Disability Survivor minimum)
15 - 49 -236 0 -236 0 0
50 - 54 238 0 238 0 0
55 - 59 341 0 341 0 0
60 - 64 22 334 21 825 509 0 0
65 - 69 28 049 28 046 3 0 0
70 - 74 696 696 0 0 0
75+ 24 24 0 0 0
Source: Swedish Pensions Agency
39 In table A4a-c the number of retirements in a specific year and age bracket is the number of (positive)
retirements minus the number of negative retirements.
42 (47)
Table A4b Administrative data on new pensioners (2019) - women
Other (including
15 – 49 -201 0 -201 0 0
50 – 54 279 0 279 0 0
55 – 59 396 0 396 0 0
60 – 64 20 375 19 908 467 0 0
65 – 69 28 173 28 182 -9 0 0
70 – 74 428 428 0 0 0
75+ 10 10 0 0 0
Table A4c Administrative data on new pensioners (2019) - total
Other (including
15 – 49 -437 0 -437 0 0
50 – 54 517 0 517 0 0
55 – 59 737 0 737 0 0
60 – 64 42 709 41 733 976 0 0
65 – 69 56 222 56 228 -6 0 0
70 – 74 1124 1124 0 0 0
75+ 39 39 0 0 0
Pensioners inside and outside Sweden

The number of pensioners with Swedish pension living abroad were 161 787 in
2020 (outcome).40 The number is projected to increase to 760 000 in 2070, an
increase of the cross-border share from 8.3% in 2019 to 18.1% in 2070. The
number may seem high, but already in 2014 there were around 600 000
individuals with Swedish pension rights living abroad.41 However, in the model
simulations there is a risk that the number is overestimated as some individuals
move in and out of Sweden several times. In money terms the overseas share is
40
41
https://www. sviv.se/wp-content/uploads/2019/04/Kapitel-Pension.pdf
43 (47)
lower, 1.4% in 2019 and 3.0% in 2070, but the relative increase until 2070 is
expected to be the same.
Compared to the 2018 projections the number of pensioners starts to increase

around 2040. The reason for this is that many of the immigrants that arrived
2016-2019 begin to retire, and many are assumed to emigrate when they retire.
Graph A1. Number of Swedish pensioners inside and outside Sweden (1000)
5000 AWG18 - Totalt

AWG18 - Abroad
4000 AWG18 - Domestic
Baseline - Totalt
3000
2000
1000
0
2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069
44 (47)
Annex 2
Income indexation
The PAYG-pensions is on average indexed by wages. The system is front-loaded,
though, and the pensioners receive a share of the real economic growth in
advance. Technically this is achieved by calculating the annuity factor with a 1.6
per cent discount factor, resulting in a higher initial benefit than a straightforward
application of the actuarial principles would give. The indexation is then reduced
during the pay-out time by subtracting 1.6 per cent from the yearly income
indexation.
The development of income is measured by the income index, which
measures the change in average income for individuals who are active in the
labour market. The income index is based on pensionable income for individuals
between age 16 and 64, without any income ceiling.
Income indexation
Automatic balancing
The Swedish PAYG NDC income pension system has an automatic balancing
mechanism that will secure the financial stability of the system. Regardless of the
demographic or economic development, the system will be able to finance its
45 (47)
obligations with a fixed contribution rate and fixed rules for calculation of
benefits. This is achieved by reducing the rate of indexing of both the active
population’s accrued pension entitlements and pension payments, if necessary.
If the current liabilities of the system are greater than the calculated assets, the
balance ratio falls below one (1) and the balancing is activated. The balance ratio
is calculated by the Swedish Social Insurance Agency and published yearly in the
pension system annual reports.
When balancing is activated, pension balances and pension benefits will be
indexed by the so-called balance index instead of the change in the income index.
Only one third of the deviation of the unsmoothed balance ratio affects the
indexation. An example: If the balance ratio falls from 1.00 to 0.99, while the
income index rises from 100 to 104, the smoothed balance ratio will be 0.9967
(i.e. 1+(0.99-1)/3). The balance index is then calculated to 103.65. The up rating
of the pensions will then be 3.65 instead of 4 percent.
If the balance ratio exceeds 1 during a period when balancing is activated,
pension balances and benefits will be indexed at a higher rate than the increase in
the income index. When the level of the balance index reaches the level of the
income index, the balancing is deactivated, and the system returns to indexation
by the normal income index. The indexing mechanism was first activated in
2011, following the Lehman Brothers downturn, and dis-activated in 2018.
Income and Balance indexation
46 (47)
Annex 3: Decomposition of pension expenditures
The ratio of pension expenditures to GDP can be decomposed into different
factors; the dependency, coverage, benefit ratio, employment rate and labour
intensity.
[1]
The coverage ratio is further split with the scope of investigating the take-up
ratios for old-age pensions and early pensions:
[2]
The labour market indicator is further decomposed according to the following:

[3]
where the former term "Career Shift" is labelled "Career prolongation".
47 (47)

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2020-12-10

The Swedish pension system and pension projections until 2070

1. An overview of the pension system

1.1 The Swedish public pension system

The Pension Group in Parliament

Table 1. Qualifying conditions for retiring

The NDC PAYG system

In case of financial sustainability problems though, an automatic balancing

Non-earnings-related minimum pensions and basic security

Information of pension entitlements and expected benefit

There is no statutory retirement age

Graph 1. Average exit age from the labour market

Men Women Total

Note: Calculations based on the labour market survey.

Survivor’s and disability pension

Private individual pensions

The mandatory premium pension system

Voluntary private pensions

1.2 Recent reforms of the public pension system included in the

Reform to the Premium Pension System

An increase in the earliest age to draw a public old age pension

A new pension supplement for mid-income pensioners

A substantial pension reform is under way

In 2013 a government inquiry, The Pension Age Committee, made several

In December 2017 the Parliament Pension Group agreed on changes which

As the above-mentioned reform is expected to be approved by Parliament only

1.3 Description of the "constant policy" assumptions in the

2. An overview of the Demographic and labour forces projections

Sweden - Europop19 EU - Europop19 Sweden - Europop17

Graph 4. Age structure comparison: 2019 vs 2070

2.2 The labour force

Average effective retirement age (administrative 64.4

Average effective retirement age (administrative 64.4

The assumption of an unchanged retirement age in combination with the

Graph 5. Hours worked, index 2019=1

Source: Commission Services

3. Pension projection results

Table 5. Eurostat (ESSPROS) vs. Ageing Working Group definition of pension

3.2 Overview of the projection results

The development of the private individual pensions depends on two

Table 7. Projected gross public pension spending by scheme (% of GDP)

The number of individuals with a disability pension started to increase sharply in

3.3 Description of the main driving forces

Public pensions to GDP -0.3 -0.3 0.0 0.4 0.1 -0.1

Evolution of the benefit and the replacement and ratios

In addition, the replacement rate from occupational pensions is expected to

Sometimes a part of the occupational and the private voluntary DC-pensions

System dependency ratio

Table 10. System dependency ratio and old-age dependency ratio

Age group -54 5.2 4.8 5.0 4.7 4.8 4.8

Age group -54 2.0 1.8 1.8 1.8 1.8 1.8

Age group -54 5.7 5.2 5.3 5.2 5.3 5.1

Age group -54 2.2 2.0 2.0 2.0 2.0 1.9

New public expenditure

There is therefore no straightforward relation between the growth of the “implicit

3.4 Financing of the pension system

Contribution base Pensionable income Pensionable income Pensionable income

3.5 Pension assets and return on assets