Expenditure on old age pensioners

In most Nordic countries the expenditure on old age have been increasing for many years and consumes more than 10 percent of GDP. A major part of this, is the expenditure on cash benefits in the form of pensions.

In the available data, there is an identifiable increase in expenditure in percent of GDP in 2020 compared to previous years. This is the indication of the indirect effect of Covid-19 on national economy, with the consequence of reducing GDP rather than increasing expenditure beyond the fact that the rate of the population of old age pension recipients in increasing.

In general, the level of expenditure on cash benefits for old age is the highest of all social expenditure. It identifies the importance of the expenditure in the Nordic countries, but also indicate why it has been of recurrent importance to adjust policies and old age pension systems to accommodate the current and expected expenditures on this area.

Since 2010, the expenditure on cash benefits have increased in all Nordic countries, at what looks like almost identical levels. Most of the countries have almost the same level of expenditure on old age pensions, except for Iceland. The available data indicate that the level in Iceland has been the lowest since 2000, with the Danish level being the highest at least since 2010.

Compared to the expenditure on cash benefits, the level of expenditure on benefits in kind is much lower in all Nordic countries. The available data also demonstrate a rather curious development. In most countries there is an increase in expenditure, as one might expect considering the general increase in expenditure as percent of GDP. This is also the case in most countries.

However, in Finland, and Iceland the development in expenditure on benefits in kind have been almost at the same level since 2010, and even longer in Iceland.

The level of expenditure has overall been highest in Norway, trailed by Sweden and Denmark. The latter two at almost the same level.

The data on expenditure consists also of sources of financing. The financing of social expenditure comes from several sources such as public authorities, employers, employees, and others.

Due to differences in national policies, there is quite a difference in the ways that expenditure on old age is financed in the Nordic countries.

The financing of expenditure on old age by public authorities is by far the highest is Denmark. This illustrates a rather significant difference between the Danish pension system, being reliable on a tax-financed structure, and the other Nordic countries having a more mixed structure of financing.

The public financing of expenditure on old age shows an increase in all countries, though it is lower in Iceland and Finland.

The financing of expenditure on old age is on the other hand supported by other sources in the Nordic countries, except Denmark. The level of financing is the highest in Sweden, Finland and Iceland, the latter with a high increase since 2010.

At the same time the level of financing pr capita is much higher in Sweden, Finland, and Iceland, than is the case for the level of public financing. It illustrates the importance of financing expenditure for old age by actors on the labour market. The level of financing in Norway is slightly lower than the level of financing by public authorities. In Denmark the level of financing by employers is the lowest in all Nordic countries.

If national policies allow for a structure of funding to secure a benefit, the sum of financing will often be higher than the total expenditure any given year.

In Nordic countries that rely on taxation to finance a benefit area, there is often no transfers to or from funding. On the other hand, the transfers to or from funding can be substantial in cases, where a country rely on funding to secure future expenditure.

The level of transfers is derived from the calculation of the sum of all financing subtracted the total expenditure. If the result is positive, it indicates a profit and therefore a transfer to funding purposes. However, if the transfer is negative, the deficit indicates that the expenditure has been supplemented by funding.

In most Nordic countries there are some forms of transfer to funding targeting expenditure on old age, but the levels are very different. The level of transfers in Norway are almost insignificant, and at a value of less than 1 PPS pr. Capita. On the other hand, the Icelandic figures looks to be periodically very high.