Sweden’s high earners opting out of the second-pillar ITP pension system are seeing their pension savings eroded by high charges levied by providers, according to pensions administration organisation Collectum.

Private salaried employees with a monthly salary of SEK47,200 (€5,374) or more – known as ‘tiotaggare’ (high-earners) – have since 1990 been allowed to opt out of ITP2 for earnings above the social security ceiling and set up their own defined contribution (DC) plan instead, known as Alternative ITP.

Tomas Carlsson, pensions expert at Collectum, said: “Many people who have made a choice to leave the ITP plan for a tiotaggar solution have been promised the moon.

“But they may be disappointed because it requires a hefty return to compensate for the high charges.”

The ITP system of occupational pension provision for white-collar workers was switched to DC from defined benefit (DB) in 2007.

The new DC part is now called ITP1, run by Collectum, and applies to people born in 1979 or later.

People born in 1978 or before are still covered by the DB scheme, now known as ITP2.

Of a total of 115,000 high-earners eligible for the ITP plan, 65,000 have opted for their own occupational pension plan, usually going through an insurance broker to arrange this, according to Collectum.

Figures from consultancy Aon Hewitt show that high earners who have left an ITP plan at age 40 may end up with SEK1.3m less in pension assets when they reach 65 compared with someone who stayed in ITP.

Andreas Lauritzen, chief executive at Aon Hewitt in Sweden, said the problem was that many of these plans were set up on an individual basis, and so have high levels of manager charges and broker commissions.

He said this difference was particularly marked when they were compared with DC plans in other countries, as well as with ITP1 and the blue-collar SAF-LO DC plans in Sweden. 

“These high charges significantly reduce the expected pension payable from these DC plans, and may mean the pension from DC is less than what they would have obtained from the DB plan in ITP2, or if they had invested contributions in the funds offered through Collectum in ITP1,” Lauritzen said.

He said Swedish employees facing the decision about whether to stay in the DB ITP2 plan or move to an Alternative ITP DC plan might lack the required information to decide whether DB was better for them.

“The key issue is that commission-based advisers will only generally advise on which DC funds to choose,” he said.

For more on ITP pension charges, see the November issue of IPE magazine