Private Pension Plans in Six Countries

Private Pension Plans in Six Countrz’es* NFORMATION on private pension survivor benefits. The law sets up a tirement rather than the period of plans in other countries has not restrictive income test for receipt of employment. I hitherto been readily available in benefits that is a form of means test. Retirement age. - Following the the United States. These plans, estab- pattern of the public system, the usual lished to supplement the public pro- Private Plans retirement age provision in private visions in effect to protect workers and Types of plans and coverage.- plans is 65 for men and 60 for women. their dependents or survivors, take Private pension plans have been in Some plans provide later retirement many forms, varying with the coun- existence in Denmark for at least 50 ages, adding as much as 5 years for try’s economy and the adequacy of the years. A majority of the larger em- both sexes. There is a trend toward basic social insurance system. The ployers have contributory plans cover- increasing the retirement age in pri- following summary of private pension ing salaried employees and providing vate plans to 67 for men and 63 for plans in efIect in Denmark, Norway, retirement, disability, and survivor women as a result of the increasing Sweden, and Switzerland as of Sep- benefits. Although some plans for average age of the population. tember and October 1952, and in Aus- wage earners exist, workers have not, Pension amount.-Few plans relate tralia and New Zealand as of October as a rule, been interested in contribu- benefits to average earnings-the 1951, is based on a series of surveys tory private plans, since payment of a usual practice in the United States made by H. Walter Forster as a service private pension may operate, through under insured plans. About half the to those of his firm’s clients who have the income (means) test, to reduce the plans are of the money-purchase type, branches in the countries he visited. amount of the public pension. Such in which an agreed percentage of cur- These reports have been made avail- reduction in benefits is of more signifi- rent pay is invested by the employer able to the Social Security Adminis- cance to wage earners than to salaried and employee in a level-premium tration. employees. contract, with the sum of the pur- This summary touches only briefly An Insurance Board closely super- chases determining the benefit level. on the social insurance provisions in vises noninsured funded plans; Under this type of funding, the older effect in the six countries.1 although it does not supervise insured the employee upon entering the plan plans, it has approved an agreement the smaller the pension. An approach Denmark between the private insurance com- to adequacy is sometimes achieved for panies and the Government’s State older employees by a supplement for Public System Insurance Company establishing ac- past-service credit and establishment The social insurance system in Den- tuarial standards and other provi- of a reasonable minimum pension. Al- mark pays male workers 65 years of sions. At the end of 1950, there were though this type of plan has much age and over and female workers aged approximately 2,500 insured Plans appeal for employers because of fixed 60 and over a flat basic pension on re- covering 50,000 employees and 300 costs, the trend is away from such tirement, plus a series of allowances noninsured plans covering 43,000 em- plans. paid under specified conditions. The ployees. Additional employees are Pensions under the remaining half basic pension varies with the size of covered by informal plans, the mere of the private plans are based on the community of residence and is ad- announcement of which gives employ- “Anal” pay-that is, pay at time of re- justed semiannually to the cost of liv- ees certain legal rights. tirement. The benefits amount to 50- ing; it is not related to wage rates. A Eligibility for participation.-Be- 70 percent (usually 66% percent) of pension is also payable in case of total fore an employee becomes eligible to average earnings in the last 3-5 years disability, but there is no provision for participate in an established private after 25-35 years of service, and they pension plan, he is usually required to are proportionally less for shorter * Based on reports made by II. Walter have worked l-3 years in the estab- service. These plans reflect the influ- Forster, a director and former president of lishment and to have attained age ence of the public plans for the mili- Towers, Perrin, Forster & Crosby, Inc., 20-30 (the average is under age 25). tary and the civil service, which date pension consultants. The summary was prepared by Herman B. Brotman, Division Many plans establish a maximum age from 1851 and which pay pensions of of Program Analysis, Bureau of Old-Age for entering the plan; for some the 70 percent of final pay after 35 years and Survivors Insurance. maximum is as low as age 40. This of service, with an employee contribu- 1 For details on the public programs see provision is designed to lower em- tion of 5 percent of earnings. In addi- Carl H. Farman and Veronica Marren Hale, Social Security Legislation Throughout ployer costs under funded plans, but tion to presenting the employer with the World (Division of Research and Sta- since the older worker thus excluded the problem of varying costs, the final- tistics, Bureau Report No. 16), 1949; Carl is usually covered by a special plan pay plans are expensive since each pay H. Farman, “World Developments in Social requiring additional employer flnanc- increase raises all prior-service costs. Security Legislation,” Social Security Bul- letin, March 1950; and Konrad Persson. ing when and if the employee attains Maximum benefits.-Many plans at- ‘Social Welfare in Sweden,” Social Secur- retirement age, the employer costs are tempt to reduce costs by devices that ity Bulletin, April 1949. largely shifted to the period after re- limit the amount of the pension. In 10 Social Security Denmark, it is customary to provide a pension. Under insured plans, the not sufficient to cover the entire con- maximum salary base on which pen- widow’s pension is payable for life tribution. Employers may deduct their sions may be computed, but the pres- regardless of whether there are any total contributions for income-tax sure is to increase such maximums as young children, and it continues even purposes, provided the contribution is wage levels increase and as high-level in the event of remarriage. Noninsured not larger than the premium for an employees are affected. Other plans plans are usually less liberal; if the annuity with benefits equal to those introduce limitations by excluding marriage took place after the em- in the pension plan. Past-service costs, from the base salary increases after ployee was 55-60 years old, the widow if paid in lump sums, cannot in gen- age 55-60 or cost-of-living allowances. is frequently ineligible for a pension. eral be charged off in less than 6 years. Employee rights on separation. - The orphan’s pension is a flat Pensions are considered taxable in- Partly as a result of legal requirements amount in some cases. In most cases, come in Denmark, where tax rates are but chiefly from accepted practice, however, it is 10 percent of the father’s relatively high even at low income Danish workers usually have rights prospective pension for half orphans levels. based not only on their own contribu- and 20 percent for full orphans. The Norway tions but also on those of their em- pension is usually payable until the ployer at the time of separation. orphan attains age 18, but in some Public Sys tern Under the plans insured with an in- cases it is payable until age 2 1. The Norwegian public system pays surance company, the premiums may Death benefits and life insurance.- all persons aged 70 or over a uniform be continued by the employee himself In view of the provision of survivor flat pension on retirement, subject to or jointly with his new employer un- benefits, most private plans do not in- a means test, with supplements pro- der the old contract; the contract can clude payment of death benefits. When vided by many of the municipalities be amended to fit the plan with the a death benefit is provided, the benefit (political subdivisions, including rural new employer; the employee may be is limited to an amount equal to ap- areas). Seamen and forestry workers given a paid-up benefit; a woman proximately 1 year’s pension. Very are covered by special plans that omit leaving to marry may receive a cash little group life insurance exists in the means test and that permit retire- payment, as may a worker who emi- Denmark. ment at age 60 and 65, respectively. grates to another country; or an em- Disability. - Almost all the private There is no national provision for pay- ployee may receive in cash the surren- plans provide for pension payment in ment of permanent disability pensions der value of the policy arising from his cases of permanent disability. Full before retirement age, but municipali- own contributions or at least half the pensions, computed on the assumption ties in some cases pay such pensions. total premiums plus 4-percent inter- that the current rate of pay for the Restricted widow’s pensions are pay- est. employee would have continued until able if the pensioner dies after age 70 Under the noninsured funded plans, normal retirement age, are payable if (following retirement), provided the minimum rights are established by a working ability has been decreased by widow is over age 60.

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