Demography and pensions

The public pension systems in the Nordic countries faces similar challenges due to an ageing population. While the challenges are similar there are, however, differences, both in the current and projected demographic changes which in turn may have different implications on the national pension system. This short article aims at highlighting some of these demographic challenges.

Pensions and the old age dependency ratio

If comparing first the share of the population with public pensions in the Nordic countries and in two points in time (see graphs below) it seems as if the Icelandic pensioners on the one hand have become relatively younger that is, between the two years a larger proportion of younger cohorts has received public pension but on the other hand a larger proportion of the older cohorts, notably aged 65-66, receive pension.

In Finland and Norway and to some extent in Sweden there is, on the other hand, a more pronounced changed to a postponement of receiving public pensions to older ages.

Note on diagrams: Interpreting the graph, it should be noted that the statistics presented on public pensions below include both old age pension and disability pension as well as small proportion receiving survivors’ pension. Thus, for the population 65 and over the public pension would almost only consist of old age pension.

Demographic changes and changes in pensions systems

The outcome in these graphs could of course be the result of both demographic changes and of changes in pension systems. In addition, the denominator in these calculations is based on the population living in the country which in turn result in proportion of pension recipients above one hundred percent and where the percentage above hundred percent would indicate the proportion of public pension being paid to citizens living abroad.

If then comparing the changes in the composition of the population it is clear, that in all the Nordic countries the population aged 65 and over has grown considerably and to a relatively higher degree than the rest of the population, meaning that the share of 65+ has increased. This, in turn, also implies that the proportion of old age pensioners in the population has increased and which to some extent is visible in the figures above.  

Ratio between age groups

The graph below instead shows the ratio between the population aged 64 and over and the population aged 18-64. The ratio is often referred to as the dependency ratio since it indicates the relation between the elderly and the working age population.

The graph indicates that the proportion of elderly in the population or the dependency ratio has increased in all the Nordic countries between 2000 and 2020 but also that the increase is projected to increase over the coming decade and for some countries in an accelerating phase.

Furthermore, the graph shows some different levels and trends between the countries with Iceland having the lowest dependency ration as well as a less pronounced increase until 2020. Even if Iceland is projected to have the most accelerated increase after 2020 it would still have the lowest dependency ratio among the Nordic countries in 2030.

Years 2021-2030 are projections