Political consensus key to Swedish pension reforms, leading economist says

Written by Adam Cadle

14/10/2013

Sweden should do all it can to preserve political consensus when planning pension reforms if the country's pension system is to continue to function well, a leading British economist has argued.

In a report evaluating the design of the Swedish system, Professor Nicholas Barr of the London School of Economics offered preserving the “consensual” way pensions policy has been managed to date as his principal recommendation.

“A central purpose of pension systems is as a long-run institution to allow people to plan over their life course,” he said. “Since the pension system is not in crisis, it is better to reform somewhat more slowly on the basis of wide and continuing consensus than reform sooner if that would risk destabilising long-run political support for the system.”

Barr also suggested revising the indexing of Swedish earnings-related pensions. The current indexing of pensions reacts too strongly to the development of the economy and wages, he said, and places pensioners in an unfavourable position relative to the working population.

According to Barr, the current indexing should be changed by reducing its linkage to the development in wages, at least as far as pensions in payments are concerned.

Cutting the number of funds in the Swedish premium pension scheme from the current 800 was also recommended.