Germany emulates Sweden when it comes to the pension system. The German red-green-yellow government wants to introduce a shared pension. About two percent of pension contributions will be invested in the capital market and will generate a higher return. Sweden has had such pension funds since 1998. A role model for Germany? Yes, says Sweden’s Social Security Minister Ardalan Shekarabi. The initial funding of €10 billion from state coffers planned for 2022 did not appear in the first draft budget of the Scholz government due to the crisis in Ukraine.
Minister Shekarabi, the Ukrainian flag is raised in front of the Nordic embassies. How much does the war affect Sweden? Do refugees also come to you?
The war worries us a lot. Refugees come to us from Poland. And we care about our national security. We decided last week to increase our defense budget. And there is a lot of uncertainty among the population. I have visited many schools in the last two weeks. Young people can’t believe that war is suddenly just around the corner. Sweden has a long history of peace. We haven’t had a war in the last 200 years.
His family fled Iran. So, are you especially affected by the flight of people from Ukraine?
Yes, but I’m not alone in that. Many Swedes have fled their former home countries. Images of people on the run trigger painful memories. But there is also a great wave of help among us. Many young people with a migration background are committed to helping refugees from Ukraine.
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In Germany, almost all corona rules will soon be lifted. This scares many citizens. Sweden went its own way from the beginning and had virtually no restrictions. How is your experience? Is fear justified?
Of course we have to be careful. Covid is a dangerous disease. We must not forget that Corona has turned our lives upside down in the last two years. However, we are convinced that not restrictions, but vaccines are the right way to go. In Sweden, 84 percent of people are vaccinated twice and a major booster vaccination campaign is currently underway. It is important that as many people as possible have all their shots before the cold season starts again. A certain negligence is setting in among young people now, we must remind them. But we have no fundamental reservations about vaccination.
Are there any restrictions due to Corona in Sweden?
There are practically no restrictions for the vaccinated. There are some recommendations for the unvaccinated.
Germany also wants to follow Sweden in another area, pensions. The coalition has agreed that, in future, two percent of pension contributions should flow into a shared pension. They’ve had something like this for 14 years. Is this the right solution for an aging society?
Yes. In addition to mandatory pension insurance, we have provided provident funds based on the capital market since 1998. The largest of these is the parastatal fund AP7. 99 percent of contributions flow to him. Your returns are good, your costs are minimal. Stock pension is the way to go. We are happy to share our experiences with Germany.
In addition to AP7, Swedes have so far been able to choose from over 800 fund offerings. Were there no failures among them?
Yes, that is why we are going to reform the system now. Not all of the 800 providers were reputable.
How does the Swedish pension system work?
Employers and the state pay pension contributions, 16 percent flows into the pension fund, as in Germany.
Do the employees pay nothing?
No, but they get paid less for it, and that balances out. Another 2.5 percent of income goes to the pension fund, with a higher return.
What is the return?
That depends on the providers. The average of the last years was seven percent, but there are also providers that handle ten percent and more. In 2020, yields were slightly lower. The AP7 was more conservative and only achieved 4.4 percent.
Stock markets recently crashed due to the war. Are stocks really a solid foundation for retirement planning?
All investment involves risks. That is why only a small part of pension contributions is invested in “capital funds”. But provident funds invest money differently. People have options.
How much funds will remain after the planned reform?
I think about 200. But the most important thing is that we will improve supervision and competition between funds. Until now we have had a pure license system, the amount of administration fees has so far practically not played any role. That should change. We improve control.
Has the state compensated people who lost money to bad providers for damages?
No, that is the investor’s risk if the fund’s return is low.
They started in 1998, and only now is Germany following suit. Isn’t the moment dangerous when you consider that three million baby boomers will soon retire and the pension system will need every penny?
Our experience is positive. Sure, there are risks, and the details of how to set something up are important. But I can tell you, we have better and higher pensions through capital funds.
In the coalition agreement, the coalition promises that pension levels will not go down, contributions will not go up, and people will no longer have to work. But is that affordable? Don’t people have to work longer if life expectancy increases?
We have the same discussion in Sweden. There is no correct answer, you have to combine different tools. One solution, of course, is to raise the retirement age. But many people are so sick that they don’t even reach today’s retirement age. If the age continues to increase, you must improve working conditions. It is also important that people who have worked for a long time but still have a small pension can make ends meet. That’s why we have a kind of basic pension since September. And in August we will introduce a minimum pension.
How tall will it be?
About 800 euros per month. But there is still a rental subsidy of up to 700 euros per month. Furthermore, 90 percent of Swedes still have a company pension.
When do you retire in Sweden?
Currently at 65, next year at 66 and in 2026 at 67. And from there, the retirement age will be linked to the average life expectancy.
Is there something you can learn from Germany?
Yes. We find the German basic pension exciting. And we realized that the concept of respect played a very important role in the last election campaign. Some of our older people feel abandoned. The fact that pensions played an important role in the successful election campaign of the Social Democrats is a model for our party to follow.
When do you have elections?