SWEDEN - White collar workers in Sweden could see a reduction in benefit offerings of up to 40% when they retire as a result of linking their pensions to earnings growth as opposed to price inflation, a change which took place at the start of the year.
White collar workers, significantly those in the defined benefit e34bn 600,000-member ITP plan, have their pensions calculated according to index base amounts set by the government.
Following a collective agreement by employers and unions, those earning more than SEK300,000 (e34,500)will experience a reduction in pension when they retire, according to Ake Flintull of consultants HRS in Stockholm. Current average annual earnings for Swedish private sector white collar employees is SEK320,000.
Flintull said: “Most employees and even employers do not know this yet. Depending on real net growth for earnings the loss in benefits for certain people in the earnings bands might be substantial, up to 40% compared to the old system, but very few know about this. It is a controversy that has not been understood by all parties yet.”
Sweden has for decades redistributed wealth via taxes to those on lower incomes, including retirees.
The largest white collar plan, ITP, now provides 10% of pensionable earnings up to SEK306,750 per year, 65% of earnings between SEK306,751 - SEK818,000 and 32.5% of pensionable earnings between SEK818,001 - SEK1,227,000.
Prior to this arrangement, the cut-off between the bands providing 10% and 65% of pensionable earnings was SEK289,500, whereas it is now SEK306,750. This means those with earnings between the two figures lost 55% of their pension within that income bracket, according to Flintull, who added: “This difference will increase, as income is expected to increase faster than the general price inflation.”
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