My post of 16 November 2011, on Sweden’s 1913 Universal Minimum Pension, was incomplete. It is true that the Swedish government provided citizens with a de jure minimum pension that was de facto universal, but I had assumed that a pension test was retained to the present day. I was wrong. I learned that Sweden in 1946 eliminated the pension test, moving to a flat pension that was universal de jure as well as de facto, while retaining the mandatory Tier 2 contributory pension.
Decades were to pass before the contribution pension of 1913 was to have an acceptable effect in terms of social policy. The pensions that were paid out therefore essentially came from the means-tested supplementary pension. Amounts were low, and above all in the towns the old-age pensioners were forced to supplement their pension with poor relief. ….
At the start of 1938 the Social Care Committee was set up with a broadly based mandate to inquire into social policy.
In 1945 the Social Care Committee presented its report on pensions. Three alternatives were presented. What they had in common was that pensions were to be financed by taxes and the level was to be so high that pensioners would not need any supplement from poor relief. In the first two alternatives the pension was to be subject to a means test, while according to the third alternative it would be a flat-rate pension, [universal] the same for everybody. …. The main argument for means-tested pensions was to save money for the state. The flat-rate pension was more expensive for the state but would be much easier to administer. In addition, a flat-rate pension would not have a negative effect on the incentive to work and save.
An interesting debate followed the publication of the report. It was about the principles of whether everyone, including well-off people, should receive the pension, as this would entail higher expenses for the state. …. In 1946 a virtually unanimous parliament passed the new law on the state pension. There were various supplements to the pension, including a means-tested housing supplement linked to a local cost-of-living index. The 1946 pension reform was the world’s first universal social insurance based on Citizen’s Rights.
Gunnar Edebalk, “From poor relief to universal rights – On the development of Swedish old-age care 1900–1950“, Socialhögskolan, Lunds universitet Working Paper 2009:3, pp. 7-8.
Edebalk’s essay is very helpful, but his assertion that Sweden in 1946 passed legislation for the world’s first universal pension is not correct. New Zealand’s universal pension, which dates from 1940, is older.
Sweden’s universal pension, unlike that of New Zealand, lasted only half a century. In the reform of 1998, Sweden reverted to a Universal Minimum Pension, known now as a “Guarantee Pension”.
It is extremely difficult to find accurate information for Tier 1 pensions, which are almost always noncontributory, and financed from general government revenue. In contrast, there is an enormous amount of information available for Tier 2 pensions, which are financed largely (or fully) from payroll taxes or employee contributions.