From unfunded to funded pension - the road to escape from the ageing trap

Haodong Qi, Lund University

In response to population ageing and the growing stress on defined-benefit (DB) pension, the Swedish Parliament passed legislation in 1994 to replace the system with a notional defined contribution system (NDC). This paper deals with the aftermath of the 1994 Swedish pension reform on the economic life-cycle across generations 1900-2030 by agent-based computation. Results suggest that the DB PAYG pension would likely raise issues of intergenerational equity. Even if reform has ensured that welfare for future generations will be higher, it is likely have a disparate impact on different generations. Striking impacts, however, can be mitigated if retirement age and yield on pension assets can increase.