The largest Swedish blue collar union, LO, is to form a unit-linked insurance company with mutual insurer Folksam. The company is designed to administer the new defined contributions service pensions plan agreed in a treaty with employers in 1996.

The pensions plan states that 2% of annual income from LO workers is to be placed in insurance companies of the individuals' choosing. The new company is to take up the competition with about 20 insurance companies opting for a contract.

We will be able to tell our members that this company offers the most inexpensive system on the market, which means that no fees are to leak out of the system," says Hans Karlsson, secretary of LO.

The pensions plan will be administered by AMF-Centralen which will place the premiums paid by employers to the life offices of the individuals' choosing. The total premiums are estimated to be Skr2.7bn ($342m) in the first year.

Employers now pay total contributions of some 3.5% of wages in pension premiums; 2% will go to the new premium reserve system and the rest to the old defined benefits STP plan.

Unions hope that employers will continue to pay a total premium of 3.5%, even after the old plan is wound up by 2000, which would almost double the total premiums to the new DC plan. Negotiations about the premiums are to start in September.

According to Tore Andersson, executive president of Folksam, the Folksam/LO joint venture will initially be run by Folksam personnel. No decision has been made as to how many unit-linked funds the system will contain.

A final decision on the forming of the company is to be made by the LO board of directors by the end of March. In October 1998 about 1m LO-workers are to be presented with the first charts for choice of insurance company.

Non-chooser pensions contributions will be managed by AMF Pension, jointly owned by employers and LO. AMF Pension presently manage the premiums paid for 1996 and 1997 and these funds will not be possible to shift to other offices. Some time in the first quarter of 1999 the first premiums will be shifted from AMF-centralen to the chosen life offices. Mikael Nyman"