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Swedish default fund loses over a third

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SWEDEN - Premiesparfonden, the default fund in the Swedish Premium Pension System, fell 36.2% in 2008, according to the latest figures from the Premium Pension Authority (PPM).

The premium pension, administered by the PPM, is part of the Swedish National Pension, with 2.5% of workers' total annual 18.5% pension contribution placed in the Premium Pension System.

Members have the option of choosing up to five funds from more than 770 funds, including mixed funds, interest funds, generation funds or share funds, however if they decide not to make a choice they are placed in Premiesparfonden, the default fund managed by Sjunde AP-Fonden (AP7).

Latest figures from the PPM showed in 2008 the total holdings in the pension system dropped 34.5%, with Premiesparfonden reporting a loss of 36.2%, while the remainder of the funds fell an average of 33.8%, to bring the total value of assets in the system to SEK 230bn (€21.2bn).

The -34.5% return for 2008 is significantly lower than the 5.8% yield recorded for 2007, and is the lowest investment figure since the 2002 negative return of 31.3%.

Johan Hellman, director general of the PPM, pointed out 2008 had been the worst year for the stock market in 100 years, and warned "no-one has been unaffected by this. Stockholm Stock Exchange went down by over 40% and all types of equity fund have been affected".

The PPM added because more than 80% of the premium pension money is invested in mutual funds, this has accounted for much of the decline in value.

In addition, figures revealed as a result of the poor performance the 2008 value of the average premium pension reduced from SEK 150 a month to SEK 115, while those who chose the premium pension in a traditional insurance policy had an average value of SEK 131 a month.

Elsewhere, the SEK 321bn AMF Pension, which provides occupational pensions for both retail and corporate markets, has revealed it may have to take back some of its discretionary bonuses because of market volatility.

Ingrid Bonde, chief executive of AMF, said in a media statement any reduction would not affect guaranteed rates, and maintained, "despite the sharp decline in world stock markets AMF is one of the most stable life insurers", with a strong solvency level.

If it happens this could affect 100,000 pensioners in the defined contribution (DC) plan, and the cut - which would only affect future payments - could be between 5-6%, which would reduce the monthly payment for an average AMF pensioner by SEK100.

Bonde added it is still unclear "if and when" a cut would take place, but confirmed a decision would be taken by the end of January on the issue, including the level of any potential reduction.

The possible cut in rates from AMF follows similar action by Danish pension funds such as Industriens Pension, PensionDanmark and Danica Pension, who all confirmed a cut in interest rates for 2009 at the end of last year. (See earlier IPE articles: Danish pensions cut interest rates to 2.5% and Danica to cut pension interest to 1.5% in 2009)

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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