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Why I think occupational pension is bullshit

The other day I was reading a post in a facebook group about saving for retirement/pension savings. I'm not going to go into specifics on the post but there were many comments from people saying that, based on the persons salary, he/she should be able to save more to their pension. Personally I don't even have a specific savings/investment account for pension and if I could I would choose salary instead of my occupational pension, even though that would be less beneficial from a tax perspective.

After reading the facebook post I did a poll on my stories with asking if people have a special savings/investment account and it turned out it was an even split between yes and no.

The quick overview about pension in Sweden is:

  1. General Pension: Parts of the taxes that are paid through your salary goes to your future salary aka your pension, this part is called general pension (Swe: allmän pension). A small part of this you are able to decide yourself how to invest, within some limits that is.

  2. Occupational Pension: Many workplaces offer occupational pension. If your workplace has a collective bargaining agreement (Swe: kollektivavtal) the terms are usually stated here, but many workplaces without collective bargaining agreements also offer occupational pension. The general rule is that it is about 4,5% of your salary up until the limit on the general pension and above that limit you usually get 30%. Depending on what provider/solution your employer has chosen you can have a lot of flexibility or basically zero flexibility to choose how to invest it.

  3. Private pension savings: On top of these two parts you can also choose to have your own private savings/investments account marked pension. You can also choose to put more money towards your occupational pension (only valuable above a certain salary) to decrease the income tax when you take the money out when you have retired. If you want to know more about this google Löneväxla in Swedish, or book a coaching session with me and I'll tell you more ;)

The general pension (part 1) is a super important part of the welfare system and I do believe it is very good that for most part you can't decide how to invest that because that pension is guaranteed by the state. This part I am very grateful for and happy about.

Then for part 2, the occupational pension, not so happy about and as you might have guessed part 3 I have chosen to not have (but reading further you will also understand why and see that I kind of have it but just have it but just specifically call it Pension savings).

Let's start with the occupational pension. Through my years of working and having different employers I have been on different levels of satisfaction with my occupational pension. The thought of it is of course great. The employer is basically saying: "Hey, we want you to have more money when you get older too, and you will also get less taxes on that income". The thing that I very much dislike about it is that I very rarely get to decide how that money is invested and also that money is also locked up until I retire. But there are better and worse versions of the occupational pension, as I see it. I want the most flexibility possible and the best version of my occupational pension I have had was when I was a consultant. Basically each month all the occupational pension money was transfered to an account on Nordnet and I could then buy whatever stocks or funds I wanted to and Nordnet has a lot to choose from.

Then there are the worst ones, like the one I have today where I had to choose one of the big banks for all the occupational pension and each bank more or less only offer their own funds and buying stocks is totally out of the question. After choosing what I considered that best option of no good ones, you are then by default put in a pre decided fund, with a low management fee (that low fee being the only good thing about this system) and it is ofc pretty messy to switch to any other funds that the bank is offering. On top of that the money is only transferred once a year and one of the first things you learn about investing is that monthly savings is key to good long term returns. You see know why I think this sucks?

Up until fairly recently it was basically impossible or super expensive to move your occupational pension to any other provider - at least we are seeing some changes here which I hope long term will make the whole system better. As of now the only good providers I know of is Nordnet and Avanza and the day that I will resign from my current job I also plan to move my occupational pension as soon as possible.

While the different providers can make the case of occupational pension better or worse the thing I like the least is that it is my money but I am not free to use them as I choose today. Personally I would much rather get the occupational pension money today, even though that would mean I would pay more taxes today than in 40 years in the future when I have retired (I'm 33 now and absolutely counting on retirement age to be 70-75 when I get older). To be honest my plan is not really to ever fully retire. My plan is and have always been to work with things I love, but of course I will most probably work way less when I get older but still I don't really see myself retiring in a way that means not working at all.

What then, if I were to get the occupational pension as salary instead, what would I do? I would still invest them, at least the major part. But I would have way more options. My guess at the moment is that at least parts of that money would go to investing startups. For someone else this money could be a great addition for the down payment of a new home. Again, for me it comes down me wanting to have full rights to decide over my money.

All that being said I think you now understand why I also don't have a retirement savings account - I just believe it to be unnecessary and I see all my money and investments as potential future retirement but parts of it might just end up being spent instead.

To summarize: I think the general pension is great and that it is a very important part of our well-fare system. There are probably things that could be improved but overall I believe this part is good. As for the occupational pension I think it is kind of bullshit and I would love to have the money now, or at least have a system where I get to decide way more myself.

What are your thoughts on pension?

Disclaimer: My view is based on how the pension system works in Sweden and to be honest I have no clue how it works in the rest of the world, but my thinking and reflections can probably be relevant in many parts of the world. Also I have simplified the overall system a bit to make it easier to grasp.

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