SAS: in the cross-border business
There are few industries with more mobile workforces than the airline sector, although the duration of their posting overseas can often depend on whether they work on long or short haul flights.
Few airlines, however, have their ‘home’ operations spread over three partner countries as is the case with Scandinavian operator SAS.
Thomas Andreasson, director pension and insurance human resources corporate, at SAS Group (this article refers mainly to the operations of Scandinavian Airlines), notes that for those outside of the Scandinavia region, the firm’s three home markets, Denmark, Norway and Sweden might seem rather homogenous in their domestic pension regimes.
“In some respects these can seem to be very similar countries, but actually they each have quite different first pillar pension systems.
Norway and Sweden are in some ways alike, but Denmark is very different.
Andreasson explains that for the second pillar in Sweden the company runs a multi-employer plan based on the ITP system of collective agreement for white-collar workers. In addition, the firm also operates an opt-out DC plan for top management in Sweden.
However, he points out that in Norway only about 40% of companies provide any occupational plans as there is no legal provision to do.
“It’s up to the company, but we do have a DB plan in Norway, which seeks for ground staff to reach 70% of salary with a deduction from social security.
“When it comes to Denmark there is no multi-employer plan either and we typically have a DC plan in Denmark.”
The Danish DC plan is made up of 10% of employer contributions and 5% employee input, and Andreasson notes that using actuarial assumptions it should be possible to reach the same benefits as the company’s DB plans, albeit without any guarantee.
The idiosyncracies of the airline business don’t stop there though for SAS. The company has separate collective agreements with the different parts of its labour force such as the flying staff and pilots’ organisations and cabin crew organisations.
And as Andreasson notes, this is not just one pilot’s organisation, it’s three: one for each country, with the same applying to the cabin crew.
The fact that the company’s second pillar systems are all based on the first pillar in each country makes them all quite different, depending on the different pensions fundamentals at play and the different collective agreements.
Says Andreasson: “This means that in effect there is not one SAS pension plan.
“It would be great if this was possible because it might take care of movement and mobility between the three countries, but there are mainly tax obstacles and social security issues and collective agreements that make this difficult and that makes our approach very local.”
However, Andreasson reiterates that the company aims for a similar pension level in each of the core countries for relevant groups of staff. “The intention behind the plans is very similar, but the practice may differ enormously.”
SAS also has small but not insignificant staff numbers in the UK, US, Japan, France, the Netherlands and Belgium and elsewhere, but in total only 1,200 people out of a total staff of 35,000 are employed outside of Scandinavia.
These plans operate on a local basis and are made to fit the local market norms where they operate, although he notes that if the company were starting its pension arrangements today it might look differently at the DB/DC equation
“If we were starting from the beginning then I think that DC solutions would be more attractive to us as a company, but that is not to say that we are against DB.
“If you look at the ITP plan in Sweden and the surpluses that have been generated in the past by Alecta, then this shows that an employer can do quite well from a DB plan in surplus. We got a lot of money back during the good times and this reduced our costs, so what we can say is that in good economic times when markets are doing well then you can certainly reduce costs for DB plans.”
To that end, Andreasson questions the wholesale move by many companies towards DC only pensions as their main strategy. “We think that DB could be a good solution if we have the same market conditions again as in the mid 1990s.”
He continues that one reason for keeping DB could be to ensure competitiveness alongside peers in the airline business. “Our aim, when it comes down to it, is to be in line with what the market provides and if the market provides DB then we have to look at that. But, for example, in the UK there is a lot of discussion and movement from DB to DC/money purchase plans and we are quite aware of those developments.”
Above all though, Andreasson emphasises the accent the company places on security of its pension arrangements.
“It’s important to note that our main pension arrangements are all insured, via Alecta in Sweden, Vital in Norway and Danica in Denmark.
He adds that this insurance net differs from the approach of other Swedish companies of its size. “Many Swedish companies operate a book reserve system, but it is the SAS belief think we should make things as safe as possible and so we have this insured arrangement.”
While ‘temporary’ mobile employees are part of everyday business for an airline like SAS, the issue of actual staff relocation is, nonetheless, one the firm has to look at carefully.
In terms of transfer of DB arrangements for staff posted overseas, Andreasson explains that it is not ‘that’ complicated, although he speaks as if there are easier parts of the job. But he notes that the challenge of shifting workers between DB and DC plans, such as between Sweden and Denmark, is significantly greater: “The problem is that there is little co-ordination between the two systems because you have the vested benefits from the DB portion of employment with the benefits that the DC plan might give you, although there are, of course, no guarantees for the total pension level.”
He notes that the company’s involvement in such transfer difficulties can depend on whether SAS is the instigator of the move. “Certainly if the company asks an individual to transfer then we review how their pension rights can be transferred in the optimum way.
“If individuals wish to move countries then we see if we can meet their request, but we inform them of the possible consequences of that, which can be quite substantial.”
Such staff transfers, however, have been crucial in the past to the functioning of SAS, as Andreasson explains: “A number of years ago, the company wanted to have more pilots in Denmark and we came to an arrangement that co-ordinated two defined benefit solutions (Danish Pilots actually have a DB plan). The principle was that the Swedish pilots that had been in the ITP system became Danish salaried and pensioned and we considered that they had been in the Danish system for their whole SAS career and evaluated the benefits accordingly in Sweden and then considered this as their pension pot. “We didn’t actually transfer the money because this would have caused tax issues but we made an allocation to the Danish system and co-ordinated with the Danish DB solution that exists for pilots.”
Such staff migrations are not new. Since its foundation, SAS, which began its existence in Stockholm, saw an influx of staff from Norway and Denmark with similar co-ordination of benefits and pension as that described above.
Asked whether the new pan European pensions directive then might help co-ordinate mobility within the group, Andreasson says it remains to be seen.
“We hope the directive will open doors, but we haven’t seen much of the concrete detail that might make this a reality. Of course it would be idyllic if we could have a pan-Scandinavian pension fund for pilots or for cabin attendants for example, because historically there have been so many obstacles to this and still are.
“I think we would need to look at the practical consequences of changing three or more systems into one, but hopefully in the future we can work with these kinds of initiatives.”
Andreasson says another spur for possible pensions co-ordination was the buy-out last year of Norwegian airline rival, Braathens, adding a further subsidiary to the list that the firm is keen to look at from a group perspective: “We haven’t gone into pensions that much yet, but for example with risk insurance we are looking at how to reduce costs and we have been quite successful in some pooling programmes. When it comes to pensions we have ambitions but nothing concrete. Maybe this development within the European Union will generate some possibilities in this field such as the further harmonisation of benefits side.
“But there are a lot of other priorities in the airline industry at the moment!”