Impact case study database

Impact: SwedenThe central recommendations of Barr’s report included that:

• The minimum pension age in Sweden should rise over time to reflect rising life expectancy: “… in addition to the application of the longevity coefficient at the time a person retires, there should also be a gradual increase in the earliest eligibility age” ( [5] p. 96, and for surrounding analysis pp. 95-98).

• The Premium Pension (in which workers choose from over 800 competing private pension providers) offered too much choice: “ Reform the premium pension, in particular to slim down choice sharply as, for example, in the Thrift Savings Plan or NEST” ( [5] p. 79 and for surrounding analysis pp. 73-80).

As part of the launch event for his report [5], the main arguments were included in an op-ed article in a leading Swedish newspaper [A].

Pension age: In 2017, the Pension Group, the long-established cross-party body tasked with the maintenance of the pension system, agreed to raise retirement age [B]. Proposals in DS 2019:2 [C], initiated by legislation in 2019 [D], made the following changes:

• On 1 January 2020, earliest pension age increased from 61 to 62.

• In 2023, normal pension age will rise from 65 to 66 and earliest pension age to 63.

• From 2026, these ages will be based on a formula relating pension age to the remaining life expectancy of a worker’s birth cohort at the time he/she reaches earliest pension age.

The number of plans: As part of the publicity for reform, Barr took part in a high-profile event [E] on 12 December 2017, as a double act with Richard Thaler (the 2017 Economics Nobel Laureate) at the Swedish Parliament, hosted by the Swedish Pension Group and the Minister for Health and Social Affairs, Ms Annika Strandhäll. An email to Barr the following day [F] from Elin Berglöf, Deputy Director Social Insurance Division and subsequently Secretary to the working group mentioned below, was enthusiastic:

“Thank you so much for an extraordinary presentation yesterday! I truly think it made a great impact [on] a lot of people present seeing it all at [once], and realising what it’s all about …Numerous people have called and emailed me to get your slides [G]. *Is it ok with you that we put them on the government web page: regeringen.se?*”

A follow-up op-ed article [H] reinforced the arguments.

In 2018, the pension group established a working group chaired by Mikael Westberg, former Chief Legal Counsel at the Swedish Pension Agency, to make proposals for reforming the Premium Pension, specifically to replace the previous system (which any provider could enter) with a procured platform with a simpler choice architecture. Together with the increase in pension age, these were the first significant reform proposals since the introduction of the system under the Pension Group’s auspices in 1998.

In November 2018, at their request, Barr met the Chair and members of the working group at LSE to discuss detailed aspects of the reform, and over the course of 2019, detailed implementation was discussed by the Pensions Group, Parliamentarians, and officials, during which time Barr continued to comment on documents as they emerged.

In December 2019, the working group’s report [I] was submitted to the Minister of Social Security [J], with recommendations [K] to establish a new agency to procure pension funds, with the three-fold task of reducing the number of funds, simplifying and improving the choice architecture for workers, and strengthening quality assurance.

In an email to Barr (19 November 2019 **[L]**), inviting comment on the report, Berglöf wrote that in drafting the report, “ we have tried to build as much as possible of the proposals on research, both behavioural economics and fund selection methodology”, noting also that, “ sharing your knowledge and research, like you did with your presentation in December 2017, is a crucial way [of] helping the politicians make the right decisions, and giving them the necessary tools to make the required compromises”. In responding to Barr and Diamond’s further evidence [M], she wrote (20 March 2020), “ I have been using a lot of yours and Peter’s brilliant quotes from your response, which has considerably increased the quality of the arguments in the Draft Bill” [N].

The legislative process is under way, but with delays because of the pandemic. In February 2021, the Pensions Group agreed on the core of the reform, with an expectation of a final Parliamentary vote during summer 2021.

Impact: FinlandBarr’s 2013 report on the pension system in Finland [6] pointed out that:

“The need for additional life expectancy to be divided in some sensible way between extra years of work and longer retirement is increasingly well-understood” ( [6] para. 13), arguing for a phased increase in the minimum pension age:

“… there is a good case for making the adjustment at least in part by gradually increasing the earliest eligibility age without any compensating increase in pension” ( [6] para. 208).

The report also argued that:

“It would [be] desirable if the pension system allowed partial deferral, e.g. the option to draw 25%, 50% or 75% of a person’s pension, while the deferred element continues to grow” ( [6] para. 13).

In 2014, after extensive negotiations between the Finnish authorities and representatives of employers and workers (the social partners), an email to Barr from Jukka Rantala, Managing Director, Finnish Centre for Pensions, 12 November 2014, reported that:

“… the social partners in Finland…achieved an agreement on a major pension reform…many of the recommendations you gave in your evaluation of the Finnish pension system, will now be put into effect” [O].

After additional evaluation [P], legislation followed. The brochure sent to the public in 2017 included that:

“As of 2017, the general retirement age will rise by three months per year until it is 65 years” ( [Q] p. 4).

“People live longer and longer. That is why the retirement age will be linked to life expectancy as of the year 2030. After that, … [i]f life expectancy increases, the retirement age will rise by a maximum of two months per year” ( [Q] p. 5).

And also that:

“You can draw your old-age pension in bits…regardless of whether you continue working or not” ( [Q] p. 6).

Why these impacts matterThe brochure explaining the reforms in Finland stated that:

“The main objective of the reform is to encourage people to work longer. Extended working lives ensure adequate pensions and pension financing and intergenerational fairness. Although working lives are extended, the time spent in retirement will also grow as people live longer” ( [Q] back cover).

The reforms contribute to that objective in several ways:

• Gradually raising pension age is necessary to protect the ability of the system to continue to pay adequate benefits to Sweden’s 2.25 million pensioners. Since pension spending in 2017 was 7.2% of GDP, targeting of resources matters. The same is true in Finland, with 1.6 million pensioners, absorbing 13.4% of GDP in 2016.

• The ability to draw partial pension facilitates longer working life, with benefits both to the economy and individual well-being.

• An annual management charge of 1% over a full career will reduce a worker’s pension accumulation (and hence his/her pension) by 20%. Reducing choice reduces administrative costs, and thus increases net pension benefits.

Wider impactResearch by Barr and Diamond [2] [3] has had wider international influence.

• Barr was a member of the Chile Presidential Advisory Commission on the Pension System in 2014-15, attending multiple meetings of the Commission in Santiago, Chile, and with an integral role in formulating the recommendations and drafting the final report [R]. Activities include briefing the President of Chile in a private meeting, together with Diamond. Some of the recommendations (including an increase in the Solidarity Pension) have been implemented. Others are currently in abeyance given unrest in Chile and the pandemic.

• He was also a member of the Advisory Board, Network for Pensions in Latin America and the Caribbean, Project on Pension Indicators, Inter-American Development Bank, a project to provide quantitative assessment of the effectiveness of pension systems in 15 Latin American and Caribbean countries (2016-17).

• Barr and Diamond gave invited evidence [S] to an Australian inquiry into the design of default pension arrangements for workers who make no choice, as a result of which they were invited to submit further evidence [T]. The final report [U] cites that evidence on multiple occasions.