Old age pension structures and income-adjustment

One common feature of the Nordic pension systems is that all citizens have a statutory right to a certain minimum subsistence amount in connection with the transition to pension – the so-called minimum/basic pension. This is in addition to the statutory labour market and employment pensions provided to those who have been active in the labour market.

Nordic statistics differ somewhat from European statistics, in that basic and supplementary pensions/earnings-related pensions are placed in the same category and referred to as the first pillar in the pension system as they are statutory. Supplementary pensions are referred to as the second pillar. And private pensions (which are not described on this webpage) are referred to as the third pillar.

There are also supplementary pension schemes laid down by law or by collective agreement. In addition, all the Nordic countries have in place a number of private pension-saving schemes, which are not covered on this webpage.

However, no clear boundaries can be drawn between the three pension pillars, especially earnings-related pensions and supplementary pensions.

Denmark

The earnings-related pensions consist of the ATP (the Labour Market Supplementary Pension Scheme), which is not income-adjusted. The basic pension consists of the basic amount of the old-age pension and pension supplements, as well as a supplementary pension allowance (the pensioner’s cheque), all of which are in-come-adjusted except the supplementary pensions, in the form of labour market pensions.

The supplements for heating and health are income-adjusted, whereas the “waiting percentage” associated with the deferred pension is not. Regarding the basic amount of the old-age pension, only income from work is included in the income basis

Faroe Islands

Employers and trade unions finance an earnings-related pensions, in which everyone over 67 years is paid a fixed monthly amount. As this payment is not dependent upon contributions, it therefore functions as part of the basic pension, and is treated as such on this website.

Part of the basic pension is income-adjusted. A special pension supplement is also payable to pensioners with no or only a small supplementary income. Other personal supplements are payable to pensioners providing for children, and to pensioners in special need of care.

Finland

Earnings-related pensions are the most substantial part of the pension system, and account for 86 per cent of pension expenditure. Basic pension may be paid if the earnings-related pension is low.

The basic pension depends entirely on the earnings-related pension. Since 2008, housing benefits to pensioners have been considered a separate benefit, rather than part of the pension system. In general, no income-adjusted supplements are payable to people drawing an old-age pension, however, the amount of the earning-related old-age pension is higher if the recipient postpones retirement until after the standard pensionable age.

Iceland

Employers and trade unions finance earnings-related pensions, in which everyone over 67 years is paid a fixed monthly amount.

The basic amount payable to old-age and disability pensioners is adjusted in relation to their own income from work, pension funds and capital, if the pensioner has a spouse then half of their household income from capital is defined as the pensioner’s own income.

The adjustment does not include earnings-related pensions and unearned in-come up to a certain level. Different income levels apply to old-age pensioners. The pension – both the basic amount and supplements – may lapse completely if a recipient’s income exceeds a specific level.

Norway

The income-related pensions can now be accrued under the new, flexible old-age pension in Norway. For most people, this will replace the employment pension and the basic pension. Those born in 1954 will be the first to receive the new (partial) old-age pension.

Everyone is guaranteed a minimum pension upon reaching the age of 67. The basic pension (grunnytelsene) is fixed according to, e.g. the individual’s marital status and their spouse’s income from work and capital. Regarding the level of the basic pension, married couples and certain groups of cohabiting couples are generally treated equally in terms of their pension status.

Sweden

Most of the pension is income related. This is known as the earnings-related pensions and is based on the contributions paid throughout the individual’s entire working life. People who receive a low income-related pension – or none – also receive a guaranteed pension. A supplementary “premium pension” is also provided. This is also income-related, but recipients can directly influence it by deciding where it should be invested. The choice is between Swedish foundations, foreign foundations and interest foundations.

The housing supplement to pensioners is income-adjusted. The housing supplement is payable to those living in Sweden and receiving benefits, in the form of a full old-age pension, activity or sickness benefits, widow’s/widower’s pension or special survivor’s pension. People receiving a full pension or a disability allowance from another EU member state are also entitled to housing supplements.