Upsetting the apple cart
Defined contribution (DC) is poised to make a clean sweep of collectively agreed nationwide pension schemes in Sweden. One after the other, these schemes have become contribution-based. In 1996 the plan for blue collar workers in the private sector was changed from a defined benefit (DB) to DC scheme, known as the Avtal pension SAF-LO. Public sector schemes have followed suit. The scheme for municipal and county workers has switched to a DC scheme, known as PFA 98. And if the government agrees, the scheme for central government workers will change to a DC scheme known as PA 03 on I January next year.
Only the ITP, the scheme for 600,000 salaried white collar employees in the private sector, has remained unchanged. Although ITP can claim to have introduced the first collectively agreed DC plan in Sweden, the ITPK, back in 1976, this is complementary to the main scheme which remains DB, with fixed benefits paid out of current contributions.
The employers’ organisations – first the Swedish Employers Confederation (SAF) and now the Confederation of Swedish Enterprise (Svenskt Näringsliv) – have consistently sought to bring the ITP scheme into line with the Avtal pension SAF-LO Hans Gidhagen, pensions expert and chief negotiator at the Confederation of Swedish Enterprise (Svenskt Näringsliv) says: “The main goal was to have one scheme for all the workers of all the companies that were members of the confederation at that time. In modern industry blue and white collar workers work side by side, so that they have the same pensions contract.”
Negotiations with the Federation of Salaried Employees in Industry and Services (PTK), the umbrella union for private sector white collar workers started in the mid-1990s, but broke down in May 1999, chiefly because of the opposition of two unions within the PTK, SIF and Ledarna, who argued that their members would be worse off under a DC scheme.
“One reason that we did not have success with the white collar workers scheme was the fact that we already had ITPK. What we have is a mixed scheme with both DB and DC. The unions thought this was a good combination to have a final salary scheme and on top of that a DC.”
Another problem is that the ITP scheme is based on the schemes of individual companies, and is well-funded. “There is also money in the ITP scheme, and there was no money in the old blue collar scheme. So it was easier for the unions to see the positive effects of having a new scheme, even a DC, for the SAF-LO agreement.”
However, the PA-03 agreement negotiated by the Arbetsgivarverket, the government employers’ agency, may have broken the deadlock. The agreement proposes a total employers’ contribution of 4.3% – significantly higher than any existing DC scheme. The PTK, with a new team of negotiators, intends to use this as a ‘template’ for its own demands.
This will be opposed by the Svenskt Näringsliv, says Gidhagen. “We would like to change the scheme, but it must be at the same cost. It can be cheaper of course but it cannot be more expensive.” In the last round of negotiation, SAF made a final offer of 3.8%. “This was the highest level where we could have any acceptance for from our member companies,” says Gidhagen.
The deal is also likely to have a knock-on effect on the existing Avtal pension SAF-LO, he adds. “We currently have 3.5% contributions for the Avtal pension SAF-LO. An increase from 3.5 to 4.3% is a lot of money and our companies are simply not willing to pay this.”
Gidhagen says that the public sector – which is outnumbered by the private sector in Sweden – should not set the pace for employees benefits: “The government side of the labour market is not supposed to take a lead on the benefits side of labour relations. It should be the private sector that sets the norms for salaries and also for pensions.”
One problem could be the surplus of employers’ contributions collected by the SPP – now Alecta – the main pensions insurance company for the ITP scheme. These have been considerable. In 2000, SPP paid back a total of SKr76bn to SAF’s member companies. This unexpected windfall has allowed some employers to take contributions holidays and to generally improve their balance sheets.
Björn Nilsson, vice president of Alecta responsible for ITP, who was formerly responsible for disbursement of the surplus to companies, says this weakens the companies’ case for wanting to change the ITP to a DC scheme.
“One of the reasons they want to change is to cut the cost of the scheme, currently around 10% of salaries. But it’s not so easy for them to argue that this scheme is too expensive if they get so much surplus that they are able to take contributions holidays. There’s a lot of money in the system.” However, in the long term, this paradox will be resolved by the conversion of the ITP to a DC scheme. With many more investment options, more members will place their contributions outside Alecta. This will eventually reduce the volume of assets under management – and the surplus.