The Market for Retirement Products in Sweden

Abstract

Far-reaching changes in the regulation
 of financial markets and the organization of public pensions
 in the 1980s and 1990s transformed the landscape for
 retirement products in Sweden. First, banking and insurance
 were extensively deregulated in the 1980s, while the
 securities markets experienced major expansion. Insurance
 received a large boost from the authorization of unit-linked
 products in the early 1990s. Second, the public pension
 system was reformed. Survivor benefits for widows were
 eliminated from the public pillar in the late 1980s, leading
 to a large increase in demand for term life insurance. The
 old defined benefit public pension system was replaced by a
 notional or nonfinancial defined contribution (NDC) scheme,
 while a funded defined contribution (FDC) component was also
 created in the public pillar. The four occupational pension
 funds that cover the majority of Swedish workers were also
 converted into FDC schemes. This paper reviews the
 implications of these changes for the Swedish annuity
 market. It discusses the regulation of payout options in
 Sweden, highlighting the compulsory use of life annuities in
 the public pillar and the preference for term annuities in
 the occupational funds. It examines the performance of
 providers of retirement products, including the PPM, and
 reviews the increasing focus on risk-based regulation and
 supervision. The paper also emphasizes Sweden's success
 in moving in the direction of increased funding and
 privatization of old age insurance, while maintaining its
 basic character as a highly developed welfare state.