We classify social security pension systems in three dimensions: actuarial versus non-actuarial, funded versus unfunded, and defined-benefit versus defined-contribution systems. Recent pension reforms are discussed in terms of these dimensions. Shifting to a more actuarial system reduces labor-market distortions, although limiting the scope for redistribution. Shifting to a funded system may increase saving, redistribute income to future generations and distort contemporary labor supply. A partial shift to a funded system helps individuals diversify their pension assets. A shift from a defined-benefit to a defined-contribution system means that income risk will be shifted from workers to pensioners.

We characterize pension systems along three dimensions: 1) actuarial vs. non-actuarial, 2) funded vs. pay-as-you-go, 3) defined-contribution vs. defined-benefit. Increasing the degree of actuarial fairness, by strengthening the linkage between contributions and benefits, reduces labor market distortions and may increase welfare in a Pareto-efficiency sense. Increasing the degree of funding implies mainly a redistribution of income among generations, although a partial shift to funding also provides better risk-return combinations for individuals. Shifting from defined-benefit to defined-contribution schemes (with fixed contribution rates) shifts the income risk from workers and taxpayers to pensioners.

The deterioration of economic performance in Sweden from about 1970 was to some extent result of a number of exogenous shocks and unnecessary policy mistakes. It was, however, also related to basic changes in economic and social system in Sweden in late 1960s and early 1970, when government spending, taxes, and regulations started to expand dramatically. It is also argued in paper that problematic political, economic, and social mechanisms had become embedded in long-term dynamics of system itself. These various experiences are background for recent reforms and retreats of the Swedish experiment.