Commissioner proposes individual learning accounts

In December 2000, a commissioner appointed by the Swedish government submitted her final report on individual learning accounts. The commissioner proposes creating a new opportunity for all adults to finance their own needs for skill development throughout their working life.

In December 1999, the Swedish government appointed a commissioner to examine the issue of individual skill development and make proposals for a new system (SE0001118N). The commissioner's remit (direktiv 1999:06) was to develop a form of account for funding skill development that would follow all individuals throughout their working lives, irrespective of changes in employment.

On 15 December 2000, the commissioner, Lil Ljunggren Dahlberg, submitted her final report on "individual learning accounts" (Individuellt kompetenssparande, IKS) to Mona Sahlin, Minister at the Ministry of Industry, Employment and Communications. The main outlines of the proposal (SOU 2000:19) are that:

• all employees and company owners would have the opportunity to save up to one "basic amount" per year (SEK 37,700 in 2002) in an individual learning account (IKS), which would be subject to tax relief on the earned income. Both private individuals and employers could make contributions to the account. The employers' contributions could be offset against tax liability;

• employers wishing to participate would receive a reduction in payroll tax of 10% of the amount contributed to the IKS. There would be a similar reduction for social security charges paid by self-employed persons; and

• approximately 1 million people, aged 30-55, would receive a basic state contribution of SEK 2,500 if they started an IKS during the years 2002-4, and made at least 12 contributions. To qualify, they must have earned an annual income of SEK 50,000 to SEK 216,000 in the year 2000. This basic contribution would be payable when either the employee's own contributions or the employer's contributions had reached a corresponding figure of SEK 2,500.

Detailed proposals

It is proposed that when funds are withdrawn from the IKS account and used for skill development, they would be treated as taxable income. However, a withdrawal would provide entitlement to a tax reduction in the form of a "competence grant premium", the size of which is determined by the scope of the skill development undertaken. Skill development that corresponds to a year of full-time study would provide the maximum competence grant premium of 25% of the "basic amount" (see above). Skill development lasting 200 days or more would be regarded as the equivalent of full-time study. The minimum length of skill development providing entitlement to a competence grant premium would be set at five days.

The funds in the IKS would belong to the individual concerned and could be used for skill development activities decided by that individual. Skill development is given a broad definition and covers both education courses and practical work activity.

Those bodies providing skill development courses or activities would be obliged to fulfil certain minimum requirements in order for the course or activity to be approved. For instance: a supplier of education should not be registered with the Enforcement Agency (Kronofogdemyndigheten) as having large debts; the goal of the skill development should be clear; and participants should carry out a joint evaluation of the course/activity. Where the skill development course/activity is approved, this would provide entitlement to withdraw funds and use the competence premium. Education that already qualifies for a study support scheme is automatically approved.

Withdrawals from the account could be made from the age of 25 and would have to be twice as large as the competence premium awarded. Funds in the IKS that are not used by the age of retirement could be transformed into pension savings or pension insurance. When withdrawals were made for other purposes, a tax of 3% of the amount withdrawn would be levied, which corresponds to the state subsidy of the account.

The practical details of the savings arrangements and their administration would essentially be the same as for individual pension savings and pension insurance. Banks, insurance companies or other savings institutes could provide competence savings facilities, in the form of deposit accounts, insurance or funds. For investments in funds, it would be stipulated that the savings must be invested in low-risk funds aimed at achieving high returns over the medium term (five to seven years). The Swedish Financial Supervisory Board (Finansinspektionen) would have the task of issuing regulations for such investments.

The long-term cost to the state's finances of the individual IKS subsidies would, it is calculated, remain within the economic framework of SEK 1.15 billion per year that parliament decided on for skill development in the national budget for 2000 (SE0001118N). In addition, there would be the cost of financing the reduction in payroll taxes - estimated at approximately SEK 30 million. It is assumed that employers would contribute approximately one-third of all annual IKS contributions. It is proposed that the financing of the additional SEK 300 million would take place within the framework of a set of changes in tax arrangements, to occur over a 10-year period, decided earlier by parliament.

The commissioner proposes that the system of individual learning accounts could start from 1 January 2002. At the same time, an IKS board should be formed to take responsibility for coordinating the work on introducing the IKS system. The board should be a small "network agency", whose tasks would be mainly outsourced, pioneering the use of electronic solutions for processing decisions, services and information.

Social partner reactions

The social partners have responded quite positively to the commissioner's proposals on individual learning accounts, given that all the organisations have more or less had the issue of individual skill development on their agenda over the past 10 years. The Swedish Employers' Confederation (Svenska Arbetsgivarföreningen, SAF) stated that it would have preferred a more individual savings system, whereby individuals took greater responsibility over their own education and savings. However, SAF conceded that a system like that proposed may be a desirable complementary measure in order to create more learning and skill development in the economy as a whole.

The two main confederations of white-collar workers' trade unions, the Swedish Confederation of Professional Employees (Tjänstemännens Centralorganisation, TCO) and the Swedish Confederation of Professional Associations (Svenska Akademikers Centralorganisation, SACO), said in a joint announcement that the proposed scheme will be one of the most important social reforms to have occurred in working life in modern times. The Swedish Trade Union Confederation (Landsorganisationen, LO) believes that the IKS will provide a good model for increasing individuals' possibilities to obtain education and training. Like SAF, LO thinks that individual skill development should be seen as a complement to other state-financed education and training, and to companies' investments in staff training. Although LO supports the government's commitment to skill development, it believes that there may be a risk that skill development, even within the proposed IKS system, could becomes an issue only for individuals and their own savings

Commentary

SAF has stated that the issue of developing competitive skills is, along with technological developments and global market changes, a key issue for companies, workers, regions and nations. It is thus of great importance that the correct conditions and incentives are in place for dynamic skill development in working life. The trade unions can easily agree with this argument. However, views differ as to the distribution of responsibility concerning the financing of investments in skill development. SAF believes that the state should take care of basic education, companies should take care of the skill development necessary for business activities, and individuals should be responsible for their own professional development and employment capability. However, SAF think that the proposed IKS saving system is worth a try. The trade unions, in spite of having a different perspective, are also positive about a solution which would mean individuals taking some of the responsibility for their own skill development. However, the ways in which such education and training is to be arranged may be very complicated. In short, both sides are therefore in favour of the proposal from the government commissioner.

According to a December 2000 report from LO, based on figures from Statistics Sweden, company-financed staff training has decreased since 1994, with the largest decrease found among the blue-collar workers represented by LO. In 1994, employees spent an average of 2.7% of their working time in training, a figure which had fallen to 1.6% in 2000. The situation is worst for women in LO-affiliated unions in the private sector, who spent only 1% of their working time in training in 2000. The professional staff belonging to SACO-affiliated unions and employed in county councils received the most training, at 7.4% of their working time in 2000. These figures highlight the need to try and find new ways of achieving more skill development. Properly handled, the proposed system of individual savings accounts may open the way to success, or at least turn out to be an interesting social experiment. (Annika Berg, Arbetslivsinstitutet)