Johan SjostromMarketing Director,

KPA PENSION(SWEDEN)

Friday, 27.9.2013

First and Second Pillar Pensions in Sweden

Conference on Pensions, September 2013, Hydra

Ev datum

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

1994Parliamentadoptsprinciplesof thenewpension plan

1991Commissionset up

1992Draftof a new pensionplan

1998Mainlegislationof thenewpension plan

2001Legislationon the automaticbalancemechanism

But transition quick i international comparison

2003 first payments according to new system

Socialdemocraticgovernment

Center-rightgovernment

Pension reform process - very long

1990 1991 1994 1998 2001 2003

Socialdemocraticgovernment

Civil servantsLocal & regional govern. empl.

Private white color

Private blue color

Swedish “pension market”, payments

ATP “old” old-agepensionplan

Inkomstpension (new)Premium pension (new)

6.2

1.0

Guaranteed pen. 1.00.6Survivors 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

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

Second pillar pensions – contributions/repl.rates

Collective agreement DC (contributions and income ceilings)

DB

Private sector,Blue collar

4,5 % < 46 430 EUR30 % > 46 430 EUR

Private sector,White collar

4,5 % < 46 430 EUR30 % > 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 EUR30% > 46 430 EUR

< 1985 DB> 46 430 EUR

Swedish market – second pillar pensions

Market volumes, life insurance

Where can Mr Svensson invest his second pillar pension?

Traditionell Försäkring

KAP-KL*

SAF-LO

PA-03*

ITP

FondförsäkringIcke-valsbolag

KAP

KTP

What’s the status of my pension?

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)

Projections made in the orange envelope

Age of retirement 0 % growth

61 year

65 year

70 year

Does Mr Svensson read his orange envelope?

Does Mr Svensson understand the orange envelope?

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

Pension forecasts from different sources

Orange envelope

Yearly statement &projections I pillar

Green envelope

Yearly statement &projections II pillar

My pensionwww.minpension.se

Forecasts on-demandI, II and III pillar

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?

Thank you for your attention!

johan.sjostrom@kpa.sewww.kpa.se