(Corrects headline) SWEDEN – AB Volvo president and CEO Leif Johansson has switched from a final salary defined benefit (DB) pension deal to a defined contributions (DC) arrangement.

The DB scheme would have obliged 53-year-old Johansson to retire at 55 while his pension package will enable him to work longer, a spokesman for the Swedish manufacturer said.

Johansson’s decision follows Volvo’s introduction of a DC pensions package for senior executives. Top managers hired before mid-2004 will be allowed to choose between retaining the DB arrangement or opting to the new DC system but those hired after mid-2004 will automatically receive a DC pension, the spokesman said.

Some 50 or so executives will be given the choice but it is not known how many will follow Johansson’s lead.

Volvo’s senior executives had previously been offered a similar deal but from the age of 60, which Volvo calls the ‘60-year agreement’. However, no new 60-year agreements will be signed, the spokesman added.

Johansson has a SEK108m (€12m) pension pot, consisting of SEK74m that has matured in the DB scheme plus an extra SEK34m. Both sums will be transferred to an unidentified insurance company in January.

According to his previous pension deal, Johansson could have retired in two years with an income of 70% of his annual salary plus his average variable salary over the last five calendar years payable until 65, when it would have dropped to 50%.

He said that by introducing a DC scheme Volvo has gained greater control over its pension expenses while retirees would enjoy a higher degree of flexibility as they will have a say on how their pension contributions are invested as well as deciding the amount paid out every year.

The spokesman declined to say how much the company would save through the new pension regime. He added it was not likely to encourage many senior executive to work beyond the customary age of 60.

Volvo has also curtailed the length of senior executives’ severance pay from a maximum of up to two years’ salary to a maximum of one year.