Pension liability for ITP 2 should sufficiently reflect the company’s pension commitments. The value of a pension commitment can, at any time, be converted to a present value. This increases over time and is greatest at the time of retirement.
The pension liability for ITP 2 consists of three parts
- Capital value - present value of earned rights.
- Funding reserve - a reserve that enhances the capital value.
- Special indexation funds - an additional provision for indexation and other adjustments to pension benefits.
Capital value – the majority of the pension liability
The capital value is determined for each individual. The calculation is based on age, income, period of service, retirement age, gender and an estimated remaining average life expectancy. The current life expectancy assumptions entail that the estimated life expectancy for a 65-year-old woman is 25 years and, for a 65-year-old man, 23 years.
When discounting future payments, PRI Pensionsgaranti applies an interest rate of four per cent. A supplement for future operational costs is added by reducing the discount rate. After this deduction, the rate of interest is 3.84 per cent. The capital value represents the largest part of your company’s pension liability.
Funding reserves – strengthen capital value
A provision as a supplement to the capital value gives your company the opportunity in the future to link the pension to inflation when the employee has retired. Fund reserves are calculated as a percentage of the capital value, currently four per cent.
Special indexation funds – established by the parties
This part of the pension liability is calculated collectively for your entire company. The funds may only be used after agreement between the Confederation of Swedish Enterprise and PTK. Commencing 1 January 2007, no new provisions are made for special indexation funds.