Unless action is taken, Sweden will soon have a large new group of poor pensioners – immigrants with a weak attachment to the labour market. This gloomy future scenario is revealed by a new government inquiry on the pension system carried out by researchers from the School of Business, Economics and Law of the University of Gothenburg on behalf of the Social Council at the Ministry of Social Affairs. But the inquiry also shows that there are ways of improving the expected standard of living.
“When we looked at the economic resources of immigrants from a country outside the OECD area, we found that this group has far worse prospects of achieving a high standard living as pensioners than those born in Sweden. And the public pension system in its present form will not succeed in evening out these differences when the pensions are taken,” says Lennart Flood, professor of economics and one of the members of the inquiry.
As the pensions of immigrants, especially those of women immigrants, will be too low to provide the basis for a reasonable standard of living, both maintenance support for the elderly and housing support will be required to increase disposable income for these groups. Professor Flood proposes another solution.
“We can bring about an increase in pension levels by index-linking the guarantee pension to incomes. An index-linked guarantee pension together with 40 years of residence provides a public pension that is between 70 and 80% of the old-age pension received by a man born in Sweden. The higher guarantee pension will be partially self-financed by resulting in a reduced need for maintenance support for the elderly and housing grants.
Such a solution would also benefit other groups who are at risk of not having sufficient pension income to live on, groups that have features in common with those born outside Sweden.
“Women born in the 1930s and 1940s in Sweden who have been housewives for most of their working lives and therefore have low pension entitlements are another group who would benefit from index-linking,” says Professor Flood.
When various political winds are blowing, there tends to be talk of raising the guarantee pension. But merely adjusting this level is not a sustainable solution in the long term, Professor Flood believes.
“Projections 20-40 years ahead show that the present-day pension system is unsusainable. Merely compensating guarantee pension for inflation is not a sufficient answer. Given economic growth, this means that pensions will be steadily eroded in relation to incomes in the working population. What is needed instead is index-linking of the guarantee pension to income levels in order to bring about a fair system in which everyone shares in growth in society.