# **6 CONCLUSIONS AND LESSONS FOR OTHER COUNTRIES**

Major reforms, including structural reforms of the financial market in the 1980s and the public pension system in the 1990s, were important prerequisites for the development of today’s thriving private insurance market in Sweden. The financial market reforms of the 1980s and early 1990s did away with a regime characterized by quantitative portfolio investment regulations. From the point of view of private insurance, the most significant development was the implementation of legislation permitting unit-linked insurance in 1993. This made it possible to couple the emerging private investment fund market with the market for contractual saving.

The first step in the reform of the public pension system was to abolish the pay-as-you-go survivor benefit for widows, beginning with women born in 1945 and later. This led to an immediate increase in the percentage of women purchasing private pension and life insurance products. Women’s demand for insurance has increased steadily since this change was introduced in the early 1990s. Most important, however, was the conversion of the earningsrelated public mandatory pension system from DB to DC. The transformation of the public commitment to a financial DC framework led to the conversion of all major occupational supplementary benefit schemes from predominantly defined benefit to predominantly defined contribution. Previously unfunded occupational schemes for public sector employees at all levels of government, became (largely) pre-funded. In addition, all occupational arrangements for private sector employees became pre-funded. This transition into increased pre-funding within a DC framework is by far the most important development in the Swedish pension landscape in the past decade.

The conversion to financial DC schemes has led to a considerable injection of money into the Swedish financial market. PPM annual premium payments amount to just about one percent of GDP. Premium payments into the private voluntary and occupational schemes (and various other products of life and health insurance) amount to almost seven percent of GDP. This is significant by international standards. This is on top of a mandatory pay-as-you-go (NDC) scheme with a relatively fixed cost of about 11 percent of GDP. The overall Swedish commitment to pensions is then around 18 percent of GDP, of which about a third is prefunded.

At 18 percent of GDP, the overall scale of pension commitments in Sweden is high. Some of the total commitment (included within the 11% cost for the public pay-as-you-go commitments) consists of transfers for the low income pension guarantee, non-contributory rights, _e.g_ ., for mothers, and covered old-age rights accruing during periods of insured unemployment, sickness and disability. The evidence from Sweden is, thus, that it is possible to maintain a strong welfare commitment even with a more pronounced pre-funding profile. The data on expected future replacement rates for full-career workers support this conclusion. Although the adequacy of coverage of persons with short earnings careers is an issue for concern in the new DC environment, the overall picture is of a country which in aggregate transfers a large percentage of its income to pensioners, in part through transfers and in part through collective and individual saving. What is important to stress is that an increasing percentage will be transferred in coming decades through saving as the new financial DC schemes mature.

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