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Table 1.3.
Methods of financing social security, 1997.
Elements
DK
S
FIN
A
D
NL
GB
CAN
Illness benefits, insurance
2
2
2
2
2
2
2
2
3)
Unemployment, insurance
2
2
2
2
2
2
2
2
1)
Injured from work, insurance
2
2
2
2
2
*
2
Disability pension
*
2
2
2
2
2
2
2
Retirement
*
2
2
2
2
*
2
*
/
2
2)
Family
allowance
*
*
*
*
*
*
*
*
Maternity leave, benefits
2
2
2
2
2
2
2
2
3)
*
Primarily financed by general taxes.
2
Primarily financed by contributions from employer and/or employee.
1)
In recent years a substantial part of the expenditures has been financed by loans for the funds in charge
of the system.
2)
In the Netherlands, itemized parts of the first tax bracket finance the public old age pension system.
3)
The employers are entirely in charge of these schemes from 1996.
nanced by taxes or budget deficits, e.g. the unemployment insurance in Sweden and
Germany has been supplemented by ’deficit’ financing in recent years.
The proportion of social contributions paid by the employer and the employees may
change over time. In e.g. Sweden the social security contributions paid by the employer
have,
as already mentioned, been lowered in recent years, in order to reduce the labour
costs. There has been a parallel increase in the employee paid contributions in Sweden
since their introduction in 1993, a tendency which is expected to continue during the
introduction of the new public pension scheme, cf. chapter 2. Denmark has very small
employer paid contributions.
According to economic theory, there is hardly any difference,
at least not in the long run,
between financing through taxation and contributions, the employees will pay for social
security anyhow. Financing by contributions may, however, imply a higher degree of
transparency, if the contributions reflect the costs of the scheme.
The schemes characterized by contributions paid by the employers and/or the employees
and with benefits related to income, are often regarded as more ’insurance like’ than other
schemes. However, almost all elements of the public social security systems are ’pay as
you go’ schemes, and there is no actuarial connection between the contributions paid and
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the benefits received. The Danish supplementary pension scheme (ATP) is probably
closest to being an ’insurance’ system. It is a ’defined contribution plan’ with an actuarial
link between the contributions and the benefits.
In systems
based upon contributions, entitlement for benefits is often conditional on
having paid contributions, but not always. In
Sweden e.g. there is a general entitlement for
the basic old age pension also for people who have never been employed or self-employed.
Denmark represents the ’opposite’ case. As already mentioned, unemployment insurance
is (from January 1994) basically financed by contributions paid by the employee and self-
employed, but in order to be eligible for the benefit the employee and self-employed also
has to be a member of the insurance system (and pay a special fee for the membership).
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