Photograph by Annabel Oosteweeghel
|
Sweden: Shrinking Benefits
By Mike Edwards, November & December 2004
|
In a suburb of Stockholm, care for Aina Karlsson, 85, arrives twice a day,
seven days a week. In the morning a vårdbiträde (care
assistant) helps her bathe and dress; in the evening she helps her get ready
for bed. Once a month she cleans the apartment that Aina shares with her
husband, Einar. And twice a week she takes Aina to a gymnasium for
exercise.
Life expectancy in Sweden is 80.4, one of the highest in Europe. Good care
could be one reason. Aina has been receiving hemhjälp (home help)
assistance since she suffered a stroke four years ago. Cost to the Karlssons:
$159 a month. "Not very much," says Einar, a retired union official.
To the municipal government, which provides Aina's care, the real cost is
about five times greater. And if the Karlssons couldn't afford even $159,
the government would provide a subsidy. "That's why Swedish taxes are
so high," Einar says cheerfully, noting that income taxes shrink his own
pension of $4,400 a month by a third.
Sweden is democratic, capitalistic, high-tech, and industrialized, well
known for Ikea and Volvo. It is also well known as a prime example of a welfare
state. Social spending, which includes payments such as pensions and welfare,
equals 28.5 percent of GDP. In the U.S. it's 16.4 percent.
The income tax rate tops out at a breathtaking 58.2 percent, and there's
a 25 percent VAT tax on most purchases. "Of course, many people say taxes
are too high," remarks Nils-Erik Hogstedt, a home-care manager. "But
the complaint isn't against the elderly. The great majority favor the
care." Adds Pernilla Berggren, the manager of a retirement home:
"People in Sweden are used to the community doing everything. You grow up
expecting society to help take care of Mom."
Tens of thousands use hemhjälp, which enables people to remain
in their own homes. "Sometimes we visit just once a month to clean,"
says Chatrin Engbo, head of a Stockholm district care office. "But if
needed, we may go several times a day and at night."
This sounds nice—but expensive. To contain costs, the government
recently sanctioned sharp cuts in home care by the municipalities, a move that
upset many. "Home care used to include visits just to sit and have coffee
two or three times a week, or just to take someone for a walk," says
Berggren. "We do the essentials, but we can't afford those social
moments anymore."
Reductions are also in the pipeline for the pension system, but for now a
worker on the job for 30 years is customarily rewarded with a pension that
replaces about 60 percent of his pay. (In the U.S. the Social Security
replacement rate ranges from about 30 to 60 percent.)
The government's worry about future solvency began in the 1990s. The
percentage of 65-plussers, almost one in five of the 8.9 million Swedes, is one
of Europe's highest. As with U.S. Social Security, pension payments made by
active workers support retirees. With low birth rates and the increase of
pensioners, experts estimate that by 2035 the system will be seriously out of
balance, with about two workers supporting each older person. (By then, America
will be in the same boat.)
Looking ahead, the parliament recently approved drastic, complicated
revisions. Out the window went the defined-benefit pension—a set amount
based on salary and years of service—replaced by a system based on
contributions by worker and employer. The benefit will be indexed to wage
growth, with a built-in expectancy that the rate will grow 1.6 percent
annually. If wages don't grow that much, the benefit drops. The plan phases
in fully in 2019, with the retirement of those born in 1954.
There's yet another new wrinkle: mandated private investments. Besides
paying into the pension's main part (employee and employer contribute a
total of 16 percent of the worker's wages), all workers are required to put
an additional 2.5 percent into their choice of investments—an idea that
has become popular among world pension experts. A voluntary form of this setup
is favored by President George W. Bush.
Swedes were optimistic in 2000, when this change took effect, even though
many were confused by the hundreds of funds, Swedish and foreign, competing for
their kronor. The timing proved terrible. The return averaged 3.5 percent in
2001, and then katastrof! Or so said a civil servant who saw a thousand
dollars vanish from her stock account as markets toppled worldwide. More than 2
million Swedes lost 30 to 40 percent of their mandated investments. (By July
2004, the average fund had recovered nearly 19 percent.)
One likely outcome of the radically revised system: to earn higher pension
benefits more Swedes will work beyond the typical retirement age of 60. Says
Barbro Westerholm, president of the Swedish Association of Senior Citizens:
"I've recommended to my children that they plan to work until they are
70."
|
