After several weeks of discussion, the parliamentary committee designing the new Swedish pension system, agreed on an increase of the premium reserve fund.
This victory for the non socialist parties in the committee was agreed for a new model of financing the individual premiums for the new system.
Another concession made by the conservatives is that the premium reserve of those individuals not selecting funds, is to be managed by a new board of the the state AP-Fund. This new AP-Fund will have a cautious approach but nonetheless will have the opportunity of allocating some 30% of the portfolio value to equities.
By increasing the total premium to the system from 2% to 2.5% the premiums will increase by Skr4bn ($500m) a year and total around Skr20bn.
In 2030 when the system has matured, the recent change is expected to expand the premium reserve fund with about Skr150bn and thus total some Skr850bn.
As IPE reported earlier the system wll be open for all fund managers considered fit-and proper" by the Finansinspektionen, the financial supervisory authority, and after that agreements have been signed with the new state Premium Pension Authority, often described as a unit-link type insurance company.
The first shift from the national debt office where premium reserve funds have been located up to now, is also likely to be postponed. The start was announced earlier to be in the first quarter of 1999 but will not be possibe for adminstrative reasons. The premium pensions authority still has no staff, offices, contracts, binding legislation or systems for handling the first Skr 34 bn expected to be handed out to fund managers of the individuals choosing in 1999. According to Hans Svensson, undersecretary of state in the department of welfare, the shift is more likely to take place in the second half of 1999.
q Consultants in Sweden have welcomed the changes announced to the taxation of contributions to pensions schemes. The government proposes to allow up to 35% of salaries be fully tax deductible.
Peter Dahl of Pensions och Forsakringskonsult in Stockholm says: "Within this framework you have full flexibility to direct contributionsto the kind of benefits you think proper." The same regime applies now to contributions to pensions trusts or to insurance plans, he points out.
At Wiliam Mercer in Stockholm, Mats Langensjo says the previous system used the format of the ITP insurance plan and as long as a scheme met those criteria it was fully deductible. "There was an alternative rule, that if you could not do this, you could then use the 35% deduction rule. This has now been made the main rule."
He believes the new system will be easier and more straightforward. "It means that for pensions it will not be a tax driven system anymore."
There are limits on the overall levels of benefits as a proportion of salary that may be provided as pension, for example, 70% in for incomes in the 7.5 to 20 base amounts range (one BA is Skr36,400).
The new system is expected to be approved this spring. Mikael Nyman and Fennell Betson"