Becoming old age pensioner

Old age pension systems in all Nordic countries have a statutory minimum basic protection and the possibility of receiving a pension that reflects the individual’s historic earnings. Beyond the big picture, there are large differences between the countries in how the system works, for instance in the level of basic protection and how it is offset against other income, the retirement age, and the earning rules for earnings related pensions.

Qualifying age

The old age pension is payable in the form of both a basic pension and a supplementary pension in all Nordic countries, however the qualifying age differs. The earliest retirement age is currently 62 years in Sweden and Norway, whereas it is 65 years in Iceland and 67 years in Denmark, the Faroe Islands. The retirement age is flexible in most countries, meaning a person can take out their pension within a certain age range.

The qualifying ages will increase in most countries in the next few years. Additionally, in Denmark, Finland, and Sweden the earliest retirement age will be linked to life expectancy by 2030.

The two graphs show the calculated compensation rates for single people comparing their income level after receiving old age pension with their income level from work. The income level used in this comparison is at 75% of the average wage.

In general, on old age pension schemes

The Nordic old age pension systems have a common feature that gives all citizens a statutory right to a certain amount of income in connection with the transition from working life into retirement. This is also known as the minimum or basic pension. In addition, the labour market and employment pensions provide supplement for those who have been active in the labour market. There are also supplementary pension schemes laid down by law or collective agreement, however there is significant differences in the pension structures across the Nordic countries. Furthermore, all the countries have additional private pension-saving schemes with vastly varying levels of importance as part of the pension policy, however these are not covered in the description of the regulations or as part of the calculations.

The basic pension scheme consists in some countries of a basic amount and a supplement, whereas in others it is only on basic or guaranteed amount. In the countries with a sizable part of the pension based on supplementary pension schemes from employment, the guaranteed pension scheme consists of a single benefit.

In terms of the relationship between the employment pension or earnings-related pension and the total payment of pensions, there is considerable variation across the Nordic countries.

Please refer to the section on Old age pension, for more specific information on rules in each of the Nordic countries.

Compensation rates

The countries differ in terms of how previous income affects the pension, due to the different rules governing pension calculations. In all the Nordic countries, the compensation rate declines together with an increasing disposable income from previous working life.

The compensation level in Iceland is not highly affected by income, but it is highly affected by the retirement age, since the compensation rate is much higher if retiring at the age of 67 instead of 65.

Except for the people who had the highest income level, measured by AW 125, Denmark is the country with the highest compensation rate. For the group earning the least during their working life, measured by AW 50, their retirement income is higher than their working life income. The old age pension provides a high level of compensation for low-income workers, due to the Danish system of state pension and semi-mandatory occupational pensions.

Most countries had relatively stable compensation rates in the period from 2007-2019. When retiring at the age of 65 Denmark has a compensation rate just below 90 per cent, while the other Nordic countries have a compensation rate between 60 to 70 per cent for the period.

When retiring at the age of 67 Finland, Norway and Sweden have a compensation rate around 70 per cent for all years, in comparison to Iceland and Faroe Island where the compensation rate is around 80 per cent and Denmark where it is over 90 per cent.

Disposable income

Apart from people who had the highest income in Iceland and Sweden, measured by AW 125, Danish pensioners who retired at 65 have the highest disposable income.

The biggest difference in disposable monthly income when retiring at 65 instead of 67 is in Iceland. Iceland is also the country with the biggest difference in pension depending on previous earnings. The high compensation in Iceland is primarily due to the assumption that recipients are fully compensated from the employment pension scheme i.e., at 60 per cent of previous earnings.

In the Faroe Islands, it is not possible to draw an old age pension at 65. When retiring at 67 Faroe Islands has the lowest disposable income, except for people with no previous income. The pension is independent of previous earnings. In Norway, the pensioners are subject to particularly favourable tax rules.