Letter to the editor
In the October 1999 issue of IPE, you published an article on Swedish pensions, Rebuilding the pillars, by Hasse Nilsson. The article gives a good overview of the developments of the first and second pillars in Sweden, but the author has made some severe mistakes in details. We list them below with due corrections in the order in which they appear in the article.
1. The current mandatory income-related old age pension system (ATP) is referred to in the second pillar. As it is a statutory pension plan it belongs in the first pillar.
2. The basic pension combined with the ATP is said to cover up to 75% of the income before retirement for the average Swedish employee. Rather, few get as much as 75% of their end salary. Most people receive 62%–70% of their end salary, up to the social security ceiling.
3. Employer contributions to the reformed old age pension system is said to be 18.5% of lifetime earnings. 18.5% is the total contribution. Employers and employees pay half each.
4. "From 1999, contributions to the premium reserve part of the system is raised to 2% of wage income.” This should be 2.5%.
5. The private sector wage earners’ (blue collar) final pay defined benefit pension scheme STP was in 1996 (not 1999 as said in the article), changed to a defined contribution scheme, LO-SAF Avtalspension. The contribution is 2% of wages (not 4% as said in the article), though it is expected to rise up to 3.5%–4% next year.
6. "Although AMF Pension will continue to administer contributions and benefits, individual employees may now choose whether to leave their premium reserves with AMF Pension, transfer them to another insurance group offering better terms, or place them in unit-linked, UCITS-recognised products."
As from 1997 the employees may choose life insurer or fund manager. All contributions from the employers are collected by FORA Försäkringscentral (insurance centre administrator of collective insurance and other collective benefits, owned jointly by the social partners). FORA distributes the contributions to the institutions chosen by the employee. Thus AMF Pension does not administer the contributions any more.
7. In table 3, “Top 10 Swedish pension entities" is a mix of different institutions, not "the 10 top pension entities". The table had several severe faults, such as:
l AMF insurance is not a pensions entity. It assures occupational group life assurance for blue collar workers, severance pay, ill health insurance for blue collar workers and employees of local government and labour market no-fault liability insurance.
l Telia PF and SPK PF (pension foundations) are far below the ten top entities.
l The assets of KP Pension&Försäkring (friendly society), for example, are around e4bn.
Jan Erik Erenius, chairman
Georg Hagström, secretary general
The Swedish Association of Institutions for Retirement Provisions