Even Sweden Is Privatizing Social Security
December 7, 1998
Sweden, a country whose name is almost synonymous with "welfare state," decided in June to partially privatize its retirement pension system. The country's leaders were finally forced to admit its cradle-to-grave benefits system was just too expensive and had damaged the economy.
- Under the new system, Swedish workers will set aside 18.5 percent of income for retirement.
- Two and a half percentage points of that will go into personal retirement accounts where it will be invested by a professional fund manager selected by the worker.
- The old system would eventually have required payroll taxes of 36 percent.
- Sweden's socialist government explicitly rejected the idea of having the government manage the funds since this would have resulted in gradual nationalization of major companies.
Under the reforms, the government-provided pension will be directly linked to the amount of payroll taxes the worker has paid. In effect, the government will maintain a shadow account that tracks annual payments. This shadow account will be credited with interest every year and then turned into an annuity at retirement.
Source: Daniel Mitchell (Heritage Foundation), "Sweden's Private Path," Washington Times, December 7, 1998.
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