SWEDEN - Countries worried about the solvency of their pensions systems could learn from Sweden's notional defined contribution (NDC) pension reform, a World Bank report has claimed.
The report said that by implementing the Swedish NDC model, launched 10 years ago, Italy, Latvia, and Poland had managed to organise comprehensive reforms with positive results.
The report, “Pensions Reform: Issues and Prospects for Non-Financial Defined Contribution (NDC) Schemes”, described the NDC approach as a system which operated as an individual retirement account but on a “pay-as-you-go” basis.
It said the approach could help address the pressure for reform posed by greater numbers of women in the global workforce, rising divorce rates, changing employment patterns in the global economy, rising budget deficits, and rising numbers of elderly are all driving the urgency for pension reform.
Co-editors of the report, Robert Holzmann, director of social protection at the World Bank, and professor Edward Palmer, head of research at the Swedish Social Insurance Agency, said: “Based on the evidence, NDC is a most promising new approach to pension reform at a time when virtually every country in the world is looking at the viability of their pensions systems, and wondering how to relieve their demographic and economic pressures, while avoiding creating additional burdens for future workers.”
The report recommended that NDC schemes be assessed as part of a broad multi-pillar pension concept, and said the approach could also help to eliminate obstacles to mobility across professions, countries, and regions.
But the World Bank warned that the relatively short time period since the introduction of NDC reforms had not allowed for careful assessment of their economic and social repercussions.
It said there was little evidence to date to show that people would postpone their decision to retire in order to boost their retirement accounts, and that a result, it was still unclear whether workers, faced with a lower pension at early retirement age, do in fact postpone their retirement or draw on a much lower pension.
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