Swedish pensioners are at risk of losing as much as SEK 19,000 a month in later life if they withdraw too much from their occupational pension in the first five years, according to Skandia.

Its report, The retirement age dilemma in 2025, addressed the challenge of ensuring sufficient retirement income for life, amid rising life expectancies.

It presented calculations for private sector workers, municipal employees, regional employees and privately employed white-collar workers born in 1975.

It found that the standard of living varies depending on occupational group, but overall, today's 50-year-olds who work full-time until retirement age are likely to enjoy a comfortable financial situation and a certain degree of freedom in how they spend their income.

However, the report set out four different withdrawal strategies that can impact retirement income over a lifetime.

The first, maxed withdrawal, provides higher income in the early years of retirement, but can mean a drop in income of up to SEK 19,350 a month, based on Skandia research, just five years are retirement.

Commenting, Skandia pension economist, Mattias Munter, said that many people are “initially attracted” by high pension payments, but forget that life in retirement is often long.

The next is a lifetime withdrawal, where income is levelled out. The report stated that this method provides greater security in old age.

Another option is to spend longer in the labour market, with a gradual phasing out. Skandia’s research found that this can add thousands to a person’s retirement income.

“Working two extra years after the target retirement age, with a gradual reduction in working hours, is an alternative to abruptly transitioning from work to retirement.

"This leads to an additional SEK 2,850 a month in pension income after tax for privately employed workers in their sixth year of retirement, SEK 3,450 more for municipal employees, SEK 4,500 more for regional employees and SEK 5,050 more for privately employed white-collar workers,” the report stated.

A fourth option includes private savings; the report found that even if a person starts saving at the age of 50, it can make a “tangible difference” to future finances.

“Supplementary private savings can partially compensate for the effect of short-term withdrawal of occupational pensions. For those who have lifetime withdrawals, private savings can strengthen margins and provide scope for extra freedom and quality of life,” the report noted.

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