NCPA - National Center for Policy Analysis

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.

 

Browse more articles on Tax and Spending Issues