Part-Time Pensions and Part-Time Work in Sweden

8. Summary and conclusion

Sweden had a subsidized social security part-time pension system from 1976 up to the turn of the century. It was a part of the social security system and was financed by a pay-roll fee. A take up of a part-time pension did not influence the old age pension (from the age of 65). There were additions to the part-time pensions from the social security part-time pension system in three of the four main collective bargaining areas (state employees, for those employed by the counties and municipalities, and for white-collar workers in the private sector).
From the start of the new scheme the part-time pension was an option for employees who were 60 years or older (up to the age of 65). The minimum reduction of working hours was 5 hours, the minimum remaining working hours 17 and the replacement rate 65% of the earnings lost due to the reduction hours. With a progressive income tax system the actual replacement rate was in fact higher. To be able to get a part-time pension the employer had to give his consent. The system became very popular in a short time. Many people applied and the employers were generally positive. The employers saw it as a possibility to restructure and rejuvenate the work force without being forced to pay a severance pay or to go through complicated negotiations with the unions.
The part-time pension was a sensitive political issue leading to a row of conflicts. The Social Democratic Party, who introduced it, was in favour of it and the Liberal and Conservative parties were against it. The system changed in 1981 after a proposal to the Parliament by the then Liberal-Conservative government. The replacement rate was lowered to 50%. The number of new pensions declined substantially. A Social Democratic government took office after the election in 1982 and after some years, in 1987, the replacement rate was enhanced back to 65%. The number of new pensions increased again. A lesson from these election outcome-initiated changes in the part-time pension system is that the replacement rate is very important for the share of those entitled who are applying.
After the election of 1991 a new Liberal-Conservative government was formed. It tried both to lower the replacement rate and to abolish the system totally. The government’s proposal in both cases lost in Parliament due to a small right-wing party which had some seats in the parliament in the period 1991-1994 and in almost all issues supported the Liberal-Conservative government in this case supported the Social Democratic opposition.
The part-time pension did however change in the 1990s. As a part of the reform of the old age pension system and as part of a compromise between the Liberal-Conservative government and the Social Democratic opposition, the part-time pension plan came to an end in two steps. The formal motivation was that a subsidized part-time pension was not in accordance with the general principles of the new old age pension system — that the pensions should be based on life-time earnings.
As mentioned, the dismantling of the part-time pension took place in two steps. In 1994 the scheme was made less favourable in several respects. The maximum reduction of hours was set to 10, the replacement rate was lowered to 55%, and the lowest eligible age was increased from 60 to 61. The number of applications became very low. For the first year it could be explained by the fact that in that year no new people became eligible due to the increase in the lowest retirement age by one year and that most of those who took a part-time pension started to do so upon reaching the age of 60. But the number of people applying for a part-time pension continued to be few. Then in the second step (already decided on in 1994) no new part-time pensions were granted from January 1, 2001.
A part-time pension system may induce some people to work part-time instead of full-time and others to work part-time instead of leaving the labour market. The effect in hours worked in the economy also depends on the number of hours worked before starting to work part-time (or leave the labour market) and the number of hours worked when taking a part-time pension. The study shows that the total effect is an increase in the number of hours worked and that this effect is larger for women than for men. There may be other effects: the financing of the system (payroll fees) may have effects on labour supply, and the take-up of a part-time pension (instead of working full-time) may influence the health status and by that the incidence of future take-ups of a disability pension.
To summarize, there are some findings from the large-scale and long Swedish experiment with a part-time pension scheme:
1. The number of people who apply varies considerably with the replacement rate but is also sensitive to other rules, for example rules regarding how many hours of working-time reduction it is possible to get compensation for.
2. There are effects going in different directions: some people make a choice of working part-time instead of full-time and some people work part-time instead of leaving the labour market.
3. The estimated effect is that the part-time pension system increased the number of hours worked.
A part-time pension system has now been re-introduced for one important group in the labour market – the state employees. It is closely modelled after the former part-time pension system. Some private employers have also introduced part-time pension systems of their own. It should also be added that there is a part-time pension option in the new old age pension system as well as in the former old age pension system. But part-time pensions according to this option are not subsidized, and lead to an actuarially reduced old age pension. There also exist part-time pensions in the disability pension system. The number of partial pensions has tended to increase in those two systems.

Pages: 1 2 3 4 5 6 7 8 9 10 11

Tags: , ,