Improving Sweden’s Automatic Pension Adjustment Mechanism

Nicholas Barr Peter A. Diamond

IB#11-2

The brief’s key findings are:

  • The economic crisis has provided a ‘stress test’ for many pension systems.
  • In Sweden, the crisis triggered an automatic ‘brake’ to restore financial balance and revealed two problems with the brake’s design:
    • it can favor workers over retirees; and
    • it can result in large shocks for retirees.
  • In response, the brake could be modified to prevent unintended gains for workers and better insulate retirees from risk.