PensionReforms' summary and comments

This book on the systems of social protection in the six Nordic countries comes in separately downloadable chapters covering everything from demographic change through family support, unemployment, illness, housing and what are euphemistically called "activation policies" (getting beneficiaries back to work).  Each of the chapters that constitute the full report is at the link here.

PensionReforms confines its review to "Chapter 7.  Old Age, Disability and Survivors".  PensionReforms had downloading difficulties so the link below goes straight to Chapter 7 that is in the PensionReforms library.

Chapter 7 includes old age, disability and survivor benefits as "the rules in the Nordic countries governing pensions are largely identical and more often than not based on the pension systems for the elderly, it was considered most expedient to describe the pension systems together."  The chapter offers comparative statistics and analyses on public schemes across the five countries.  It does not include "private pension-saving schemes".

For the 50-66 age group, men have a higher employment rate than women in all the countries covered but employment declines markedly with age for both.  However, Iceland has the highest employment rate and Finland the lowest.  The report puts this down to "  different occupational structures, with the resulting different damages to the health of the labour force, differences in the unemployment situation in the 1990s, as well as differences in the possibilities of withdrawing early from work with public income-substituting benefits."

The Danes and the Fins apparently retire early more frequently and early retirement is less common in Iceland where there is a labour force participation rate of about 60% for both sexes at age 66.  By contrast, it is about 10% for men and 5% for women in Finland.

Older persons' replacement rates  exceed 70% for singles across all five countries and range from about 58% for couples in Denmark to 83% in Sweden.  All countries require 40 years' residence to qualify for the full basic pension.  This uniformity has been driven by the EU/EEA Agreement.

In Norway and Finland, taxation of pensions favours pensioners over other taxpayers - they receive the same tax treatment as other income in the other three countries.

The state pension age is 65 for Finland and Sweden and 67 in the others.  Remarkably, in light of the pressures to raise the age in other countries, the age has recently reduced to 65 from 67 in Denmark (from 1 July 2006).  All countries provide a basic pension and a Tier 2 "employment pension".  The terms and coverage of the Tier 2 pension vary significantly across the countries.

The proportion of the retired population receiving just the basic pension is broadly similar across the countries as is the distribution within sexes.  However the difference between the sexes is remarkable - between 12% and 31% of men receive just the basic pension across the five countries. For women, on the other hand, the proportion who receive just the basic benefit is between 69% and 81%.

Increases in state retirement pensions are usually tied to wage and/or price increases.

Chapter 7 of the report also looks at institutions and home help for the elderly; support schemes and leisure activities and also health-related disability pensions and care for the disabled across the five countries.  The incidence of these seems connected, unsurprisingly, to the flexibility and generosity of the early retirement arrangements for age pensions.

Expenditure on the retired is highest in Denmark (calculated in Purchasing Power Parity terms) and lowest in Finland.  Services to the old cost most in Iceland and least in Finland.  Measured by GDP, total expenditure on the old in 2004 was 7.3% of GDP in Iceland, 7.5% in Norway, 9.0% in Finland, 11.7% in Denmark and ranged up to 12.7% in Sweden.  Another 3.5% to 5% of GDP was spent on pensions and other services for the disabled. 

Social protection of the kind common in the Nordic countries does not come cheaply. PensionReforms notes that even so, these figures do not include the costs of preferential tax treatments of Tier 2 pensions.   (File size 327 KB) Social Protection in the Nordic Countries  128