The national supplementary pension scheme, introduced in 1960, is from this year successively replaced by a new old age pensions system decided by the Riksdag in 1998. Those born in 1937 and earlier will receive a supplementary pension according to the old rules. Those born between 1938 and 1953 will receive part of their pension according to the rules of the old system and part according to the new rules through a 20-part gradual introduction of the new system. Those born in 1954 and later will receive pensions entirely according to the new rules.
The old pension system consists primarily of two parts, the national basic pension and the supplementary pension scheme (ATP). Also included in the public pension system are government housing supplements and a separate system of partial pension for those between 61 and 64 years of age.
The national basic pension is the same for everybody and provides a single person with 96% of a base amount. Married persons receive 78.5% of a base amount.
Everyone who has worked for at least 30 years is entitled to an unreduced national supplementary pension. The pension will then be 60% of the average pensionable income in the 15 best years. Pensionable incomes are incomes over one and under 7.5 base amounts.
The national supplementary pension scheme favours those who, over their working life, have had an uneven flow of income or who have worked a shorter period in life. It is disadvantageous for those who have had regular income and worked for years.
In the new old age pensions system pensions are primarily to be based on lifetime income. This will include incomes from employment and business activities, as well as sickness benefit, parental benefit and other social security benefits. Some 18.5% of the individual’s lifetime income is to be paid into the pension system earnings. Yearly incomes, including social security benefits, to a limit of 7.5 times the base amount, will carry pension rights. Sixteen percentage units of 18.5 percentage units will be used to finance the PAYG part and 2.5 percentage units of the 18.5 percentage units contribution will be saved and will earn interest in a premium reserve account. The insured may choose investment managers for his or her premium reserve pension. They may change fund manager as often they likes to.
Contributions to the PAYG scheme as well as pay-outs from that scheme will be linked to economic growth. Pensions will be pegged to average income growth.
At retirement the pension entitlement is calculated to a yearly pension, according to primarily the average life expectancy at the time of retirement. Those who have not been employed, or have only a small income are guaranteed a minimum pension.
In Sweden, second pillar pension benefits for almost all wage-earners and salaried employees are determined by nationwide collective agreements on pension schemes and other retirement provisions. Almost all employees (90–95 %) in the private and public sectors are covered by such schemes.
Almost all wage earners within the private sector (1.4m) are covered by the SAF-LO Collective Pension Agreement between the Swedish Employers’ Confederation and the Swedish Trade Union Confederation). The total income earned by the employee from the age of 21 qualifies for the pension. The employer pays a pension premium of 3.5% of the total gross pay to Fora Försäkringscentral, a service company. By and large the entire industry is available to manage the pension premium, and employees themselves decide which insurance is to do this. The employee can choose between traditional pension insurance and unit-linked insurance. Fora works as an intermediary between employer, employee and insurer. Wage-earners within the co-operative sector have a similar pension scheme, insured with KP Pension & Försäkring (a friendly society).
Most salaried employees are covered by the ITP scheme, which is based on collective agreement between the Swedish Employers’ Confederation and the trade unions for salaried employees within the private sector. The ITP scheme is a DB scheme, supplemented with a DC scheme (ITPK), the contribution being 2% of salary.
The old age pension may be either insured with Alecta (formerly SPP) Mutual Insurance Company or registered with PRI – the Pension Registration Institute and covered by book reserves and insolvency insurance (with FPG – Pension Guarantee Mutual).
There is an option for the employees to choose other insurance companies than Alecta for the defined contribution part of the scheme (ITPK). There are several pension schemes, similar to ITP, the benefit level being mostly the same as with ITP. These schemes are insured with friendly societies or with life assurance companies. They may also be covered by book reserves combined with insolvency insurance.
All employees with local government (county councils and local authorities) are covered by a DC pension scheme (PFA 01). The general contribution is 3.4% of salaries and wages, for some groups 3.5% or 4.5% for incomes up to the social security ceiling and 1% over the ceiling.
The contributions are booked on an individual account with the employer. The accrued sum is granted interest. As from 2000, 1% of the total contribution is funded externally in a fund of the employees’ own choice. As from 2003 all contributions will be externally funded. For incomes over the social security ceiling, the employee is entitled to DB at about the same level as in the former DB plan.
Second pillar – recent expected changes
Negotiations for a new pension plan for salaried employees has been going on for more than a decade but the social partners have still not come to an agreement. It is expected that a new pension plan be a DC plan with contributions of 4% up to the social security ceiling and DB of 65% of end salary over the ceiling. The members may choose an insurance company/fund manager for the DC part of the plan.
In Alecta (former SPP), a considerable overfunding has accrued. The main part of the overfunding is now distributed to the sponsoring companies and the members.
If a new DC plan for salaried employees is launched, there will be almost no DB plans for incomes up to the social security ceiling – only central government’s supplementary pension scheme. Central government is expected to follow the general trend to DC.
The possibility for the employees to choose insurer/fund manager is now, or will soon be, a general rule for the whole second pillar (as for the first pillar). The competition between insurers and fund managers will be still harder.