New occupational pension scheme will boost pensions for private sector
Published: 2 September 2007
In April 2007, the Swedish Trade Union Confederation (Landsorganisationen i Sverige, LO [1]) and the Confederation of Swedish Enterprise (Svenskt Näringsliv [2]) agreed that blue-collar workers in the private sector would contribute the same amount to the collective occupational pension scheme as white-collar workers. After it was accepted as part of the collective agreements negotiated up until the end of May 2007, the agreement was finally signed in June of this year.[1] http://www.lo.se/home/lo/home.nsf/[2] http://www.svensktnaringsliv.se/
In June 2007, the main social partners signed an agreement on a new collective occupational pension scheme for 2008 and beyond. The annual pension premium will gradually increase from 3.5% to 4.5% over a five-year period. The new pension scheme means that private sector workers will receive an improved pension from 2008. Thus, comparable pension conditions for blue-collar and white-collar workers are established in the private sector.
In April 2007, the Swedish Trade Union Confederation (Landsorganisationen i Sverige, LO) and the Confederation of Swedish Enterprise (Svenskt Näringsliv) agreed that blue-collar workers in the private sector would contribute the same amount to the collective occupational pension scheme as white-collar workers. After it was accepted as part of the collective agreements negotiated up until the end of May 2007, the agreement was finally signed in June of this year.
Provisions of new scheme
In general, the premium rate for employers under the new scheme will gradually increase during the next five years and will, in 2012, match the same premium rate that employers contribute for white-collar workers in the private sector. More specifically, the agreement provides for the following changes:
the pension premium for employers will increase from 3.5% to 4.5% of an employee’s monthly salary below the public pension ceiling, that is, the maximum salary on which pensions are payable. The pension ceiling is 7.5 income base amounts which currently corresponds to a maximum annual salary of SEK 344,250 (about €37,140 as at 13 August 2007). In Sweden, many benefits are expressed as percentages or multiples of what is known as the base amount, which is determined by the government each year and used to compute the maximum pensionable income. For 2007, the income base amount stands at SEK 45,900 (€4,952) (see Table);
the premium rate to be paid on wages above this ceiling will amount to 30%, namely SEK 28,600 (€3,085) a month (see Table);
the period for the payment of the premium during parental leave will be extended from 11 to 13 months;
pension earnings will begin at the age of 25 years instead of 21 years as in the previous agreement.
| Year | Premium increase< 7.5 income base amounts | Premium increase> 7.5 income base amounts |
|---|---|---|
| 2008 | 3.9 | 6 |
| 2009 | 4.0 | 12 |
| 2010 | 4.1 | 18 |
| 2011 | 4.3 | 24 |
| 2012 | 4.5 | 30 |
To illustrate what the new pension scheme will entail, a calculation can be made based on a monthly salary at SEK 20,000 (€2,158). According to the previous agreement, which provided for a 3.5% premium rate, the pension would have been SEK 8,400 (€906) annually. With the new premium rate of 4.5%, the annual pension amount will increase to SEK 10,800 (€1,165), representing a difference of SEK 2,400 (€259) a year.
Social partner responses
Both the LO and the Confederation of Swedish Enterprise were satisfied with the new pension agreement.
The First Vice President and Negotiating Secretary of LO, Erland Olausson, considered it a positive development that an agreement had finally been reached, providing all members of LO with the same pension conditions as white-collar workers in the private sector. This new agreement closes the social gap between blue-collar and white-collar workers.
According to the Deputy Chief Executive Officer (CEO) of the Confederation of Swedish Enterprise, Jan-Peter Duker, the employer side is satisfied that the agreement ensures the same pension conditions for all workers in the private sector. Moreover, the employers consider that the new pension scheme will also result in lower costs for the social partners due to a revision of insurance companies.
Commentary
Depending on age and income, the new agreement will result in a monthly increase of between SEK 500 (€54) and SEK 5,000 (€540) in pension rates. For some workers, the increase can amount to even more. The pension increase from 3.5% to 4.5% will offer much higher pension rates at the retirement age of 65 years and thus lower the economic gap between social groups in Sweden.
Thomas Brunk, Oxford Research
Eurofound recommends citing this publication in the following way.
Eurofound (2007), New occupational pension scheme will boost pensions for private sector, article.
