Sweden: Salary cap introduced and normal retirement age raised in the ITP 1 plan

Employer Action Code: Act

Starting in 2023, a salary cap will apply to Sweden’s occupational defined contribution pension plan covering salaried employees born after 1978, and benefits will accrue up to age 66. Almost all salaried employees in the private sector are covered by one of the two occupational ITP (Industrins tilläggspension) pension plans (or plans heavily influenced by them) that are the result of a long-standing collective agreement between the Confederation of Swedish Enterprise (SAF) and the main union for salaried employees (PTK). The ITP 1 plan is a defined contribution arrangement mainly for salaried employees born after 1978, while the ITP 2 plan is a defined benefit arrangement mainly for employees born before 1979 who are covered by a collective bargaining agreement signed prior to April 26, 2006. The latest agreement between the SAF and the PTK, effective January 1, 2023, introduces a salary cap for determining ITP 1 plan contributions and extends by one year the age up to which members may accrue ITP 1 plan benefits.

Key details

• For determining monthly contributions to ITP 1 plan members’ accounts, the member’s monthly salary will be capped at 30 times the monthly published Income Base Amount (IBA), which would have resulted in a monthly cap of 177,500 Swedish krona based on the 2022 IBA. The ITP 1 contribution rate is unchanged, payable by the employer at 4.5% of covered pay up to 7.5 times the IBA, plus 30% of pay above this threshold.    
• The age up to which ITP 1 plan benefits accrue will increase from age 65 to 66, matching the increase in normal retirement age (NRA) for social security retirement benefits from 2023. NRA is unchanged for the ITP 2 plan (age 65). Eligibility for long-term disability coverage will increase to age 66 under both plans.

Employer implications

Affected employers should prepare for the changes. Employer ITP 1 contributions will be reduced for employees with monthly pay above the cap (e.g., if an annual bonus payment causes the monthly cap to be exceeded), unless there is a separate agreement in place with the employer to pay contributions based on total earnings. Under the ITP 2 plan, pensionable salary is already capped at 30 times the IBA; however, the cap applies annually, not monthly. In practice, almost all firms (97%) with collectively agreed plans provide the standard ITP retirement benefits, according to results from a WTW survey conducted before changes to ITP 1 were announced. Fourteen percent of surveyed companies with collectively agreed ITP plans also offer retirement plans that supplement the collectively agreed plans (usually for executives).