After more than a decade of negotiations, the new ITP scheme –

the pension plan for Swedish white-collar employees – is finally ready for launch. In February, 11 mandates were awarded to asset management and insurance providers in one of the largest tender processes

in Sweden.

The new ITP plan, which heralds a move away from the old defined benefit (DB) system to a defined contribution (DC) model, was heavily delayed because of strong resistance from the PTK, the Swedish white-collar union confederation. This is despite employees in all the other Swedish sectors having already switched to DC. Svenskt Näringsliv, the confederation of Swedish enterprises, and the PTK were involved in negotiating the ITP plan.

Wider investment choice

The new scheme, which offers employees a wider investment choice, will eventually cover employees in all sectors, but those born in and before 1978 will stay in the old ITP plan, while those born in and after 1979 will come under the new system. The plan only covers those working at companies with collective wage agreements. Employers who entered collective wage agreements after 25 April 2006 can also be covered by the new scheme and high earners, with an income over €49,600 a year, can also choose to be covered under the new plan – if an agreement has been reached with their employer.

Under the new model investments can either be made into traditional insurance products, which invest mainly in bonds and guarantee a minimum level of income, or in more risky investment products. At least half of members’ contributions must be invested in traditional pension insurance products, but members can choose to invest all of their money in these low risk vehicles.

As with the PPM, the Swedish Premium Pension System with more than 700 fund choices, the new ITP scheme has a default option – which is to be managed by Alecta. Experience from the PPM system suggests that the default option is likely to attract the largest amount of capital. Also the default fund for KAP-KL, the fund for municipal and county council staff, manages around half of its members’ assets.

The ITP board began its manager search in August last year. The board, with six members from Svenskt Näringsliv and the PTK, intended to award two to five mandates in each of the low risk and higher risk categories, but five providers were eventually chosen in each, as well as one default option.

Per-Olof Westerlund, pension expert at PTK and member of the ITP board, says that he was pleased with the results of the tender. “We have a responsibility for the money saved in the ITP plan and have tried to put the security of our members first,” he says.

Of the 15 companies that handed in offers, Alecta, AMF Pension, Länsförsakringar Liv, Nordea Liv & Pension and Skandia Liv were chosen to manage funds in the low risk category while AMF Pension, Länsförsäkringar Fondliv, Moderna Försäkringar, SEB Trygg Liv and Swedbank Försäkring were selected to run money in the higher risk category. Alecta was chosen to run the default fund.

SPP loses out

One of the biggest surprises was that the Handelsbanken-owned SPP, which made offers in both categories, failed to pick up any mandates. “We are very surprised,” says Göran Holgerson, chief executive of SPP, who remains critical of the tender process. “The ITP board only seems to have taken pricing into account, with little concern for other criteria, such as the quality of the product.”

Gustaf Rentzhog, president of consultancy Söderberg and Partners, which was involved in advising ITP on the selection process, adds: “The tendering process of the new ITP scheme paints a false picture of promised cost reductions and plays Russian roulette with pension savers’ money. [Also] Alecta has never delivered services for a premium based system before and only has experience of a DB system, where they have been a monopoly player. Nobody knows how well they will perform.”

The new ITP plan will be up and running by 1 July 2007.

THE ITP SYSTEM IN BRIEF

• The ITP board awarded its mandates based on three criteria: price, financial stability and ability to create returns. Of these, price was the most important.
• One of the main changes with the new ITP plan is that Alecta is no longer the only manager within the system, although it will manage the default fund. Alecta has managed the old ITP plan since the 1960s and is owned by PTK and Svenskt Näringsliv.
• The new scheme will eventually cover all sector employees, but those born in and before 1978 will stay in the old ITP plan, while those born in and after 1979 will come under the new system. The plan only covers those working at companies with collective wage agreements.
• Employers who entered collective wage agreements after 25 April 2006 can be covered by the new scheme and high earners, with an income over €49,600 a year, may also choose to be covered by the new plan – if an agreement has been reached with their employer.

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