Becoming old age pensioner

The Nordic old age pension systems have a common feature that gives all citizens a statutory right to a certain amount in connection with the transition from working life and into pension age.

Qualifying age

In all the countries the old age pension is payable in the form of both a basic pension and a supplementary pension, however the qualifying age differs across the countries. The earliest pension age is at 65 years of age, whereas it is 67 years of age in Iceland, Norway and the Faroe Islands. In the years to come, the qualifying age will increase as part of recent implementation of pension reforms.

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 and into pension age. 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 as part of the pension policy schemes, which is 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 significant 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. For further information on pension schemes in the Nordic countries, refer to the section on old age pension.

Compensation rates

There are quite a few differences between the countries 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 persons who have had the highest income level, measured by AW 125, Denmark is the country with clearly highest compensation rate. For the group that have earned least money, during their working life measured by AW 50 the pension in Denmark is even higher compared to the former income from work. 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 2007-2018. When retiring at the age of 65 Denmark has a compensation rate just below 90 per cent and the other Nordic countries has 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. Iceland and Faroe Island have a compensation rate around 80 per cent and Denmark over 90 per cent.

Disposable income

When retiring at the age of 65 Denmark has the highest disposable income except for the people who have had the highest income, measured by AW 125, where Iceland and Sweden have the highest disposable income, due to the employment pension.

Iceland has the biggest difference in disposable monthly income when retiring at the age of 65 instead of 67. The old age pension increases significantly when working two more years, because it is only possible to draw an old age employment pension at the age of 65, not basic pension. Iceland is also the country that has the biggest differences 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 the age of 65. When retiring at the age of 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.

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