This differs from the United States situation where benefits go up less than proportionately because of the progressive benefit formula. Fairness and Redistribution . The notional defined contribution system creates a clear link between contributions and benefits. In contrast to the old system, benefits in the new pension system are determined by lifetime contributions. However, for workers in the lower half of the wage distribution, the link between contributions and benefits is blurred because of the offset between the income pension and the guarantee pension.
Redistribution is an important goal in Sweden s pension policy.
The guarantee pension ensures income security for individuals with no or low incomes. At the same time, the system redistributes income from high earners by putting a ceiling on earnings used in determining benefits but levying the employer payroll tax on full earnings. The design of the Swedish pension is new and, following Sweden, several other countries have adopted similar systems. The new pension system is tied to economic growth, making it financially stable in the long run. The transition to the new pension system is made possible by the fact that Sweden has accumulated large reserves in order to meet pension obligations for the baby boom generation.