The document summarizes Sweden's pension system, which has two pillars: 1) The state pension (first pillar) is based on income up to an annual ceiling and includes an income pension, premium pension, and guaranteed minimum pension. 2) Occupational pensions (second pillar) are negotiated collectively and cover about 90% of the workforce, paid by employers as defined contribution plans with individual choice of funds. The second pillar has four main collective agreements and different contribution rates and replacement rates depending on the agreement and income levels. Swedes can track their pension forecasts online through a joint government and industry website or annual envelopes mailed to citizens. Future reforms may increase retirement ages and introduce tax incentives for third pillar

1. Johan Sjostrom
Marketing Director,
KPA PENSION
(SWEDEN)
Friday, 27.9.2013

2. First and Second Pillar Pensions in Sweden
Conference on Pensions, September 2013, Hydra
Ev datum

3. State pension (I pillar):
• Based on income
• 18.5% on ones’ income is set aside
• Income pension (16 percentage points)
•Pay-as-you-go, notional defined contribution
• Premium pension (2.5 percentage points), individual choice of funds
• Guaranteed pension (minimum level)
• 46 430 EUR (2013) is the ceiling for accruing pensions rights
Occupational pension (II pillar):
• Nation-wide collectively negotiated agreements
•Covering appr. 90 % of the workforce
• Paid by employer, DC, individual choice
The Swedish pension system

4. 1994
Parliament
adopts
principles
of the
new
pension
plan
1991
Commission
set up
1992
Draft
of a
new
pension
plan
1998
Main
legislation
of the
new
pension plan
2001
Legislation
on the
automatic
balance
mechanism
But transition quick i international comparison
2003 first payments
according to new system
Social
democratic
government
Center-right
government
Pension reform process - very long
1990 1991 1994 1998 2001 2003
Social
democratic
government

5. Civil servants
Local & regional govern. empl.
Private white color
Private blue color
Swedish “pension market”, payments
ATP
“old” old-age
pensionplan
Inkomstpension (new)
Premium pension (new)
6.2
1.0
Guaranteed pen. 1.0
0.6Survivors pen.
7.8
1.0
1.6
9.3
10.3
1.5
75%
15%
10%
Occupa-
tional
Public
Private
Percent of GDP“Market share”
0.0

6. Second pillar - four main collective agreements
White collar
750 000
Blue collar
1 200 000
Private sector employees Public sector employees
State
215 000
Municipals and Regions
1 100 000

7. Second pillar pensions – contributions/repl.rates
Collective agreement DC (contributions and
income ceilings)
DB
Private sector,
Blue collar
4,5 % < 46 430 EUR
30 % > 46 430 EUR
Private sector,
White collar
4,5 % < 46 430 EUR
30 % > 46 430 EUR
< 1979 (DB)
> 46 430 EUR
State sector 4,5% < 105 710 EUR Appr. 60 %
replacement
> 46 430 EUR
Municipals and regions 4,5% < 46 430 EUR
30% > 46 430 EUR
< 1985 DB
> 46 430 EUR

8. Swedish market – second pillar pensions

9. Market volumes, life insurance

10. Where can Mr Svensson invest his second pillar
pension?
Traditionell Försäkring
KAP-KL*
SAF-LO
PA-03*
ITP
FondförsäkringIcke-valsbolag
KAP
KTP

11. What’s the status
of my pension?

12. The orange envelope
• Started in 1999
• Distributed each year to
citizens born in 1938 and later
– Pensionable income > 1 843 EUR
• Distribution:
– January to March
• 6,2 Million envelopes each
year (population 9,3 Million)

13. Projections made in the orange envelope
Age of retirement 0 % growth
61 year
65 year
70 year

14. Does Mr Svensson read his orange envelope?

15. Does Mr Svensson understand the orange envelope?

16. www.minpension.se
• Implemented in 2004
• 1,8 million users (2012)
• A joint initiative by the State
and the Insurance Industry
• I, II and III pillar pensions
• A tool for individual forecasts

17. Pension forecasts from different sources
Orange envelope
Yearly statement &
projections I pillar
Green envelope
Yearly statement &
projections II pillar
My pension
www.minpension.se
Forecasts on-demand
I, II and III pillar

18. Initiatives in the near future
• Increasing minimum pension age
– Currently at 61 year in first pillar
– Currently at 55 year (DC) and 61 year (DB) in second pillar
• Premium Pension in first pillar?
– Funded or not funded?
– Number of funds?
• Tax incentives for third pillar pensions?
– To be or not to be?
• Financial literacy
– How can Mr Svensson be more financial literate?

19. Thank you for your attention!
johan.sjostrom@kpa.se
www.kpa.se