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Appendix: Swedish institutions
The pension system
The Swedish public pension system was reformed in 1998. The 1938 cohort was the
first to receive old-age pensions from the new scheme, with 4/20 of their pension
benefits coming from the new scheme and 16/20 coming from the old scheme. Each
successive cohort receives an additional 1/20 from the new scheme and 1/20 less from
the old scheme (the cohorts born 1954 or later receive their pensions only from the new
scheme). Since there is a cohort-based element that slowly phases in the new pension
scheme, individuals born 1938-1953 are in both the new and the old schemes. Thus the
cohorts studied here – born 1931 to 1939 – receive public pensions mainly from the
former system.
The former old-age public pension system was a defined benefit scheme consisting
of a flat-rate basic pension and an income-related supplementary pension based on the
best 15 out of 30 years of earnings.
31
The new system is a combination of notional
defined contributions on a pay-as-you-go basis, which is based on pension contributions
to income throughout the whole working career, rather than just the 15 best years, and a
smaller defined contribution scheme in which the contributions are invested in mutual
funds or bonds. Individuals with small or no pension claims receive a guaranteed
pension. The old system had a normal pension age of 65 but in the new system the
retirement age is flexible. The main factor determining replacement rates in the old
system was the age at retirement in relation to the normal pension age of 65, through
actuarial adjustments. The replacement rate in the new system is instead determined by
a cohort-specific devisor that is governed by life expectancy at age 65, and period-
specific indexation that may slow down or speed up the development of pension
benefits in relation to wages, depending on the financial situation in the pension system
as a whole.
The current public pension system has a cap at 424,500 SEK in 2013 prices (about
49,000 Euro). During the time period of studied in this paper the old public pension
system operated, and the cap was 333,750 SEK in 2013 prices (about 38,000 Euro). For
most employees, incomes above the cap are covered by occupational pension schemes,
31
For those with less than 30 years of service the benefit was reduced proportionally.
