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Can any Swedes confirm/deny this summary of the pension plan: http://www.heritage.org/research/reports/2000/06/pension-reform-in-sweden-lessons-for-american-po

Can any Swedes confirm/deny this summary of the pension plan: http://www.heritage.org/research/reports/2000/06/pension-reform-in-sweden-lessons-for-american-policymakers http://www.heritage.org/research/reports/2000/06/pension-ref... "Partial privatization. Workers can invest 2.5 percentage points of the 18.5 percent of their income that they must set aside for retirement. Soon workers will be able to choose the pension fund into which the funds will go." Any talk of even partial privatization in the US gets the old folks quite worked up. Political scare tactics and such. Plus a healthy (and not unwarranted) distrust of Wall Street that would love to get it's filthy paws on _even more_ retirement money.

CaptainZapp 15y ago
I can't speak for Sweden, but for Switzerland where your pension rests on three pillars. Two of them mandatory and one where you're free to invest, but receive tax benefits if you do: Pillar 1 is called AHV (AVS in French). This is the responsibility of the federal government and there are no plans to privatize this; ever. Since there is a maximum payout, which is quite low it has a certain wealth redistribution component. That is: When you make a lot of money you pay a percentage into the fund, which is a percentage of your earnings. So, a person making a lot of money pays more into it, but since the payout is capped at a fairly low level, he may get the same benefits as somebody who earned much less and thus payed much less into the fund Pillar 2 is the actual pension plan, which is mandatory. Every company must insure their employees and big companies run their own schemes. While those funds are privately run, there are strong restrictions in place how they can invest the money of their insureds. The difference to the AHV is that the payout depends on the amount you payed in over your lifetime as a worker. Payout is based on a formula and the age of retirement can be dependent on the insurer. Employees don't have a choice about which pension plan they have and there are differences in quality. I could imagine that the system in Sweden is comparable (private, but very restricted in how they invest) but must admit that I'm assuming here. Pillar 3, incidentally called pillar 3 (3. Säule) is not mandatory. You can pay a maximum yearly amount into a fund, a bank account or to an insurer (~ 7500$ if employed ~ 38000$ if you're not part of a pillar 2 pension plan) and this amount is fully tax deductible. The string is that you can only get it out when you turn 60. There are ways to get the money out before that. Either when you invest in a house, or apartment or when you leave the country for good. Same goes for the pillar 2 assets accumulated. There's no such thing that a company can legally pull an Enron and invest the assets of their employees into their own company. I know that the Swiss system is considered excellent. The dutch system is considered even better, but I have no expertise to discuss it.
henrikschroder 15y ago
It's been like that for almost ten years now I think. You can read a little bit about it here, "Premium Pension" is the type you want: http://pensionsmyndigheten.se/AboutYourPensions_en.html http://pensionsmyndigheten.se/AboutYourPensions_en.html Basically, part of the blob of income tax you pay on your salary is a "pension fee". When you retire around the age of 65, your final pension depends partially on how much you've paid in pension fees in total while working. But you don't set aside that money, instead the pensions fees people pay now are used to pay pensions for retired citizens, and future pensions will be financed by the future workforce. But then you have the "Premium pension" which does allow you to set aside part of your pension fee and invest into private funds. Generally the systems is a failure, most people don't care about choosing funds, so they automatically end up in a government run generally mediocre fund. A small percentage are investing soundly and successfully, a larger percentage are investing badly, and most people get screwed by high commission fees of the various funds. On top of these systems there are of course ways to save additional money for your retirement, there are some tax benefits, and you are free to invest pretty much however you want. But yes, it is interesting that we have more privatization than the US in this, it doesn't happen very often. :-)

CaptainZapp 15y ago

I can't speak for Sweden, but for Switzerland where your pension rests on three pillars. Two of them mandatory and one where you're free to invest, but receive tax benefits if you do: Pillar 1 is called AHV (AVS in French). This is the responsibility of the federal government and there are no plans to privatize this; ever. Since there is a maximum payout, which is quite low it has a certain wealth redistribution component. That is: When you make a lot of money you pay a percentage into the fund, which is a percentage of your earnings. So, a person making a lot of money pays more into it, but since the payout is capped at a fairly low level, he may get the same benefits as somebody who earned much less and thus payed much less into the fund Pillar 2 is the actual pension plan, which is mandatory. Every company must insure their employees and big companies run their own schemes. While those funds are privately run, there are strong restrictions in place how they can invest the money of their insureds. The difference to the AHV is that the payout depends on the amount you payed in over your lifetime as a worker. Payout is based on a formula and the age of retirement can be dependent on the insurer. Employees don't have a choice about which pension plan they have and there are differences in quality. I could imagine that the system in Sweden is comparable (private, but very restricted in how they invest) but must admit that I'm assuming here. Pillar 3, incidentally called pillar 3 (3. Säule) is not mandatory. You can pay a maximum yearly amount into a fund, a bank account or to an insurer (~ 7500$ if employed ~ 38000$ if you're not part of a pillar 2 pension plan) and this amount is fully tax deductible. The string is that you can only get it out when you turn 60. There are ways to get the money out before that. Either when you invest in a house, or apartment or when you leave the country for good. Same goes for the pillar 2 assets accumulated. There's no such thing that a company can legally pull an Enron and invest the assets of their employees into their own company. I know that the Swiss system is considered excellent. The dutch system is considered even better, but I have no expertise to discuss it.

henrikschroder 15y ago

It's been like that for almost ten years now I think. You can read a little bit about it here, "Premium Pension" is the type you want: http://pensionsmyndigheten.se/AboutYourPensions_en.html http://pensionsmyndigheten.se/AboutYourPensions_en.html Basically, part of the blob of income tax you pay on your salary is a "pension fee". When you retire around the age of 65, your final pension depends partially on how much you've paid in pension fees in total while working. But you don't set aside that money, instead the pensions fees people pay now are used to pay pensions for retired citizens, and future pensions will be financed by the future workforce. But then you have the "Premium pension" which does allow you to set aside part of your pension fee and invest into private funds. Generally the systems is a failure, most people don't care about choosing funds, so they automatically end up in a government run generally mediocre fund. A small percentage are investing soundly and successfully, a larger percentage are investing badly, and most people get screwed by high commission fees of the various funds. On top of these systems there are of course ways to save additional money for your retirement, there are some tax benefits, and you are free to invest pretty much however you want. But yes, it is interesting that we have more privatization than the US in this, it doesn't happen very often. :-)