Government proposes individual learning accounts system

In April 2002, the Sweden's minority Social Democrat government presented a bill introducing a new system of individual learning and skill development accounts for employees, following an earlier agreement on the issue with the Left Party and Green Party. The new system, which should come into operation in 2003, will provide tax incentives for learning and study activities, plus encouragement for employers to contribute to their employees' learning accounts.

An agreement between the minority Social Democratic Party (Socialdemokratiska Arbetarepartiet, SAP) government and the Left Party (Vänsterpartiet) and Green Party (Miljöpartiet de Gröna), setting out the framework for a new system of 'individual learning accounts', was announced on 12 March 2002. The agreement is based largely on proposals on an individual skill development savings system made in December 2000 (SE0101178F) by a government-appointed commissioner (SOU 2000:19). On 15 April 2002, the government presented a bill on the issue, containing provisions very similar to those in the agreement between the three parties.

These basic idea is that there should be possibilities for employees to build up saving accounts to be used for training and skill development, and the scheme should be sufficiently tempting to attract a large number of employees. Even workers with medium to high incomes should have the possibility to receive a satisfactory individual skill development through the scheme, while individuals with only a limited possibility for saving should still be able to take part. The savings should be accessible, with broad possibilities to make withdrawals from the accounts. The risk of possible misuse will be addressed. Employers will be given the opportunity to reinforce the system by making deposits in employees' individual savings accounts.

Details of the scheme

Under the government's proposal, individual workers will be given the possibility to set aside a maximum of SEK 9,500 per year, including a tax reduction, in a skill development savings account. In order to allow a rapid introduction of the new system, the savings will initially be made in accounts administered by a governmental agency. In the future, saving with financial institutions such as banks and insurance companies will be considered

When withdrawals are made from the account, these sums of money will be subject to income tax. However, to encourage people to make withdrawals, there will be a new 'skills and learning premium', in the form of a tax deduction. The maximum premium will be 25% of a basic reference amount, linked to the prices index. Initially the reference amount will be SEK 9,500. The full premium (a maximum of 25% of SEK 9,500) will be paid in respect of one year's full-time study (ie 200 days of study) When the employee studies for a lower number of days, the premium is reduced proportionally. No premium is paid for learning and skills development that lasts less than five days. However, there is a fixed premium of SEK 1,000 for everyone, independent of the number of days of study.

Individuals who save in a learning accounts may later withdraw these funds without having undergone learning and skills development. In this case, the withdrawn funds will be liable to full income tax, with no premium paid.

Employers may make deposits into employees' individual learning accounts. If so, they will receive a tax deduction corresponding to a reduction of 10 percentage points of their payroll taxes on the sums involved. The same applies to self-employed people saving towards their own skill developments Special rules will seek to ensure that abuse does not occur in the new system.

The financial framework for a new individual learning account system was decided by parliament in 2000 (SE0001118N). About SEK 3.65 billion has been earmarked for carrying out the reform. The bill presented to parliament in April 2002 is a 'guideline' bill, with a second bill providing more details to be published in autumn 2002. The new system, participation in which is optional for employees, is planned to be operational from July 2003.

Recently some groups, including the Swedish Trade Union Confederation (Landsorganisationen, LO), have called for some of the money earmarked by parliament for the development of learning accounts to be used instead for improved 'readjustment insurance' (omställningsförsäkring) to assist newly unemployed blue-collar workers. LO has said that the blue-collar workers it represents would probably not gain as much from the new individual learning account system as other groups, such as white-collar workers and professionals. However, a government committee is currently surveying the whole system of readjustment insurance and is expected to report in summer 2002.

Commentary

In December 2000, the commissioner examining the issue recommended that the amount that could be saved each year in an individual learning account should be around SEK 38,000 - four times more than the SEK 9,500 now proposed by the government. This proposed upper savings limit has been criticised as being very low, and inadequate for financing study. Opinion is divided within the Social Democrat movement on the scheme, with some leading economists close to LO believing that the proposal for individual learning accounts is akin to private pension schemes and weighted in favor of higher earners.

The two other main trade union confederations, the Swedish Confederation of Professional Employees (Tjänstemännens Centralorganisation, TCO) and the Swedish Confederation of Professional Associations, (Sveriges Akademikers Centralorganisation, SACO) - representing white-collar workers and professionals respectively - are positive about the government proposal, though they have recently proposed their own schemes in this area. For example, in February 2002 the two confederations suggested, together with LO, that the individual learning accounts system should be shared into three parts: one made up of savings accounts; one based on local collective agreements related to company activities, and the third involving the abovementioned readjustment insurance for newly unemployed workers. (Annika Berg, Arbetslivsinstitutet)