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Falling costs and strong returns prompt KLP price cut

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Norway’s municipal pensions provider KLP is to cut prices for its customers amid looming changes to its competitive environment.

The premium reductions follow a strong investment return recorded in the first quarter of the year. KLP’s investments added NOK2.2bn (€226m) to its portfolio in the first three months of 2019.

Sverre Thornes, KLP’s chief executive, said: “The return on our customers’ pension funds is well above the return we have guaranteed, and our costs are low.”

He added: “We are finding that low costs and a strong financial position allow us, as a mutual-owned company, to pursue our ambition to reduce prices and hence costs to our customers within public sector occupational pensions.”

In the first quarter, the pension fund generated a value-adjusted return of 3.1% and a book return of 1%, which it attributed to strong equity market performance.

As a result, KLP’s total group assets rose to NOK699bn at the end of March from NOK676bn at the end of 2018.

Reforms take shape

Sverre Thornes, chief executive, KLP

Sverre Thornes, chief executive, KLP

The provider has held a near-monopoly in the local authority pensions market in Norway since 2012 but is set to have more competitors as the country reduces its tally of municipalities.

The reform means that some of the new, larger local authorities will be able to expand independent pension schemes and therefore have less need for KLP’s services.

In addition, the advent of a new hybrid pension scheme for public sector workers in Norway, to replace existing defined benefit models, could also increase competition from other providers.

Storebrand and DNB announced in February that they intended to re-enter the municipal sector following the implementation of the reforms in January 2020.

The funds previously managed a third of the market’s pensions, before quitting back in 2012, leaving KLP largely unchallenged.

However, KLP said today that the ongoing reform efforts had not affected its growth.

The firm also emphasised the importance of equalising pension premiums regardless of age or gender. Trade unions and employers have agreed that KLP should continue to build on this principle, ahead of a debate on the subject in the Norwegian parliament.

“This is an important point to make clear before the changes in public sector occupational pensions take effect from 1 January 2020,” KLP’s Thornes said.

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  • Oslo, Norway

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