The newly launched generational capital “will be further developed according to the Swedish model”, the FDP board of directors wrote last week in its new five-point plan, which also included new pension plans. At the weekend, deputy parliamentary group leader Christian Dürr followed up. In an interview with Bild he said: “The Swedes have done something very smart: they have made retirement more flexible. These rigid designs are no longer applied according to the motto: everyone is equal, everyone retires at 65 or 67 years old. If you want to work longer, it's worth it.” A model that he would also like to introduce in Germany and he immediately mentioned the possibility of starting to receive pensions at 72 or 73 years of age.
But does the pension in Sweden really work so differently from that in Germany? Here's what you need to know about the Scandinavian model:
1. Flexible retirement – yes, but…
What applies in Sweden? In Sweden you are not allowed to retire until you turn 63 at the earliest, but also at any later date. You have the right to work until you turn 69, after which you must agree continued employment with your employer. The amount of your pension depends on how many contributions you have made during your working life and your retirement age. The later you retire, the higher your salary will be. The logic behind this is that the higher your retirement age, the shorter your retirement period until death.
What are the advantages and disadvantages of this? In principle, the Swedish system hardly differs from the German one in this aspect, it is simply designed the other way around. While the Swedes have a minimum retirement age and each additional year of work carries a bonus, in Germany there is a maximum age and each early retirement carries a penalty in the form of pension deductions. Furthermore, in Germany it is already permitted to continue working after retirement age. Since you will continue to contribute to pension insurance afterwards, your pension benefits will also increase. It is therefore unclear what exactly Dürr wants to replace Sweden with Germany.
2. Pensions in shares are mandatory in Sweden
What applies in Sweden? In Sweden, employees contribute 16 percent of their income to the general pension fund, from which old-age pensions are then paid. For the so-called premium pension, another 2.5 percent is deducted. This amount must be invested in one of hundreds of publicly traded, state-certified funds. They can be stock funds, but also other types of investments. If you don't choose any fund, your money will automatically be invested in a government-run fund. Premium pension payments then depend on the income generated by it.
What are the advantages and disadvantages of this? The great advantage of the premium pension is that the State is not responsible for part of the pension payment, but the insured are forced to make private provisions. But there is the disadvantage: if you invest the money in a fund that has losses, your pension will be reduced. According to an evaluation by the Hans Böckler Foundation, average nominal pensions in Sweden were reduced three times in the 2010s alone, that is, before taking the inflation rate into account.
Conclusion: the Swedish system is not very different
In reality, the Swedish pension system differs little from the German one. Instead of deductions for early retirees, there are bonuses for late retirees, but this has little influence on the amount of pensions. According to OECD data, Swedish pensioners receive an average of 41.3 percent of their previous salary from the public system. In Germany the figure is more or less the same: 41.5 percent. The funded pension and the company pension system contribute another 12.0 percent. Germany's Riester pension system is already higher at 14.1 percent.
Whoever defends the adoption of the Swedish model in Germany therefore has another motivation. The Swedish model is largely designed to ensure contribution rate stability. “The Swedish interpretation of sustainability as absolute stability of the contribution rate has placed the risks unilaterally on employees and pensioners. Neither employers nor the state are directly responsible for the pension system in the event of problems in the labor or financial market that lead to lower income,” writes political scientist Florian Blank in an analysis for the Hans Böckler Foundation from 2022. In other words : The Swedish system protects companies and the State from higher spending, at the expense of pensioners.
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