Retirement pensions, which are related to the ITP 2 plan may be financed in two ways: As a direct pension promise by using the book reserve method in combination with a credit insurance provided by PRI Pensionsgaranti. Or by pre forwarding pension costs by paying premiums to an insurance company called Alecta (mainly smaller companies).
To use the book reserve method a company must apply for and be granted credit insurance by PRI Pensionsgaranti (mutual insurance co.). PRI Pensionsgaranti guarantees the retirement pension to the employees in case of an employer insolvency.
PRI Pensionsgaranti provides all economic reporting services required and administer pay out of pensions to the employees as well.
Benefits of using the book reserve method include:
- Pension capital can remain within the company and be used where best suited over time
- The employer have full control over costs and can eliminate friction related to regulations life insurance companies are subject to
- Employee pensions are guaranteed by the credit insurance. PRI Pensionsgaranti is backed by a majority of the biggest listed companies in Sweden through the mutual ownership
Salient reasons for companies with ITP 2 book reserve method to establish a pension foundation
As part of a Group pension policyA company may decide to fund or partly fund the pension plan as part of a policy choice.
By allocating funds in advance, future cash flows can be secured before pensions are to be disbursed.
Efficient way of financing pensions
A potential surplus in a pension fund creates financing possibilities for other types of retirement pensions.
The value of the assets in a pension foundation is allowed to match the pension liability in a company and/or Group balance sheet for accounting purposes.
Might reduce tax on capital gains over time and costs related to pension contributions
Return in excess of the Statslåneränta (government borrowing rate) are taxed favorable. Contributions to pensions is taxed at lower level than income.
Reduced credit insurance cost
The PRI credit insurance premium gets reduced if a company have a pension foundation holding assets that cover insured liabilities.
Extra security for PRI Pensionsgaranti
PRI Pensionsgaranti might require an additional security in order to prolong a credit insurance contract.