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