Abstract
The main goal of the Swedish pension reform was to construct a public PAYG pension system, which is more or less autonomous and where no or only a minimum level of political intervention is needed to guarantee the financial stability of the system. Despite this goal, some features of its design may jeopardize the desired political autonomy. This paper evaluates the financial balance and the demographic adjustability of the new PAYG system in a dynamic general equilibrium model of overlapping generations. The main findings are that the demographic adjustability of the system is poor. Furthermore, the financial balance and pension levels are, to a large degree, dependent on the pension fund and its returns. The adjustability may be improved by making some alterations to the system's benefit formula and also decreasing the system's pension fund dependency. It is also shown that the new public system imposes an agedependent implicit tax on labor earnings that is falling with age. Within the PAYG system, this tax is large for younger workers for whom almost the whole contribution is regarded as a tax. By introducing a public defined contribution system, the total implicit tax may be reduced since the defined contribution system implies a negative implicit tax because savings are subsidized within the defined contribution system.