Swedish national pension fund AP7 reported a 4.4% return in 2020 for the average saver with its Såfa default option in the country’s premium pension system – half the gain made by private funds offered on the first-pillar system’s funds marketplace platform.
However, the result was a turnaround from the 7.2% first half loss suffered by the equity-dominated lifestyle fund, and AP7 stressed that over the last 20 years, its default option had still returned more than double the average of the privately-run alternatives.
In its annual report released today, AP7 said: “The return for the average Såfa saver in 2020 was 4.4%. During the same period, the average return for private premium pension funds was 8.2%.”
It added: “The difference is mainly explained by the fact that AP7 Såfa has a higher currency exposure than the private premium pension funds.”
AP7’s total assets under management rose to SEK722.5bn (€71.7bn) at the end of 2020 from SEK674.2bn a year earlier, according to the report.
The pension fund said that risk, measured as standard deviation in the latest 24-month period had been 17.7% for the Såfa product, compared to 13.1% for average for private premium pension funds.
This was mainly because the proportion of savers over the age of 55 was still small, it said, so Såfa’s bond fund allocation was therefore still low.
From the default option’s inception in the autumn of 2000 to the end of 2020, its return had been 292%, AP7 said, compared to 131% for the private premium pension funds.
AP7’s equity fund – the main building block in the different lifecycle savings options it provides – produced a 4.7% return in 2020 while its smaller bond fund ended the year with a 1.0% return.
Richard Grottheim, AP7’s chief executive officer, said in the annual report: “I am very pleased that AP7, with the help of our risk framework, has succeeded in dampening the effect of extreme volatility in 2020.”
Through this framework, AP7 had gradually reduced the fund’s risk level over the past three years, he said.
“During the turbulent first months of the COVID-19 outbreak, the value of the risk framework became obvious, as the decline for the portfolio was clearly less than if the fund had been at the long-term risk level it normally had within the premium pension,” Grottheim said.
At the end of 2020, the equity fund’s leverage corresponded to 14.8% of its capital, up from 14.1% a year before, according to the report.
The equity fund held SEK655.4bn at the end of last year, and the bond fund had SEK67.1bn, AP7 reported.