On Wednesday 27 November, Skandia presented a new report which shows the so-called “respect distance”, i.e. the difference in pension between the person who worked an entire professional life and the person who worked little or not at all. Now the alarm is being sounded about the development where one thing is clear: the respect distance has decreased considerably in recent years, which causes a big difference in the wallets of Sweden’s pensioners.
The life insurance company Skandia states that since 2021 there have been a series of changes to the pension system that have had a major impact on the respect distance. Among other things, the strengthening of the guarantee pension, which in itself is part of the basic protection in the general pension system.
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“It reduces the drive for work”
Matthias Munter works as a pension economist at Skandia and in an interview with News24 he elaborates on what risks he sees with the distance reducing and how it can affect the pensioners.
– It reduces the motivation for work and negatively affects trust in the pension system. The drive for work is central to pensions, not only for building one’s own future pension but also for today’s pensioners whose income-based pensions are increased in line with general income trends. Today, it is increasingly the occupational pension that forms the distance of respect, he says.
What does it mean in practical terms and who is affected?
– In practice, this means that a large percentage of today’s pensioners receive some form of tax-financed supplement to their pension. For those with the lowest pensions, it is of course a welcome addition. At the same time, this means that expenditure on pensions from the state budget increases. For example, the government expenditure on the guaranteed pension has increased by approximately SEK 20 billion in the years 2019 to 2024, to just over SEK 34 billion, Munter explains and adds:
– The effect of the Riksdag decisions linked to the respect distance was reinforced when we had a period of high inflation which increased the basic protection significantly more than the income-related pensions. For 2025, however, we see that the income pensions will again grow more than the basic protection, which is a welcome effect of the decrease in inflation.
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Mattias Munter is a pension economist at Skandia. Photo: Press image Skandia “It’s a problem”
The basic principle of the pension system is something called the lifetime income principle. This means that all income during one’s life must build up the individual’s pension, rather than other funds such as government funds.
The development has instead led to the fact that it is no longer as profitable for the pension to have worked for a long time. Despite that, Munter believes that the Swedish pension system is still very stable. But parts of it have become crooked over time.
– But the straight pipes between work and pension that were the basic idea are now so crooked that the system becomes impossible to understand and that is a problem.
Skandia’s report shows that the respect distance decreases by up to SEK 1,350 a month for future pensioners who have worked all their lives, compared to those who have worked little or not at all.
The report shows that the respect distance decreases by up to SEK 1,350 a month for future pensioners who have worked all their lives, compared to those who have worked little or not at all.
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It needs to be done to balance the pension system
As the distance decreases, action should be taken. Pension economist Mattias Munter cannot see any simple solution to the development. Instead, he believes that a higher fee to the system may sound like the easy way forward, but basically it means that both consumption and tax revenue are postponed to the future, which should not be preferred.
– If you also want increased fees to have a short-term effect even on today’s pensioners, we risk a generational injustice. Regardless of what the politicians ultimately decide to do, there is every reason to clean up the basic protection which is now unnecessarily complicated and expensive for the taxpayers, concludes Mattias Munter by telling Nyheter24.
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