Pensions firm Skandia in Sweden warned in a new report that politicians must act over large municipal pension liabilities, but the lobby group for the local authorities has played down the issue, saying that in relative terms the debts are falling.
Publishing its report, ‘Hidden pension liabilities risk tax increases’, Skandia said pension liabilities of the country’s local and regional authorities grew SEK4.5bn (€417m) last year to SEK478bn.
Some SEK324bn – nearly three-quarters – of this was hidden by not appearing on the local governments’ balance sheets, the firm said.
Greger Gustafson, pension specialist for local and regional authorities at Skandia, said: “If Sweden is to be able to maintain the high level of welfare that citizens expect, it is high time that politicians began to prioritise the financing of pension debts in order to avoid cuts in welfare or increased taxes around Sweden.”
Skanida claimed that new calculations showed that nine out of 10 inhabitants in Sweden were at risk of increased taxation as local and regional authorities could be forced to raise taxes to finance the pension debt and balance their books.
Annika Wallenskog, chief economist of the Swedish Association of Local Authorities and Regions (SALAR or SKL), confirmed the debt figures published by Skandia, but said that since the debt burden was effectively decreasing, there was no major problem.
“It’s a big debt, but not a big problem,” she told IPE.
The Skandia report was done every year, she said, but described the problem outlined as “exaggerated”.
“The debt has been going down in proportion to salaries since 2015,” she said.
The overall figure was so high because of remaining pension liabilities from the pre-1998 pay-as-you-go pension system that the municipalities and regions used to operate, she said.
In 1998, the local authorities began funding their staff pensions, she said.
“The local authorities are paying for the two systems, but the debt is going down”
Annika Wallenskog, chief economist of the Swedish Association of Local Authorities and Regions
“So now they’re paying for the two systems, but the debt is going down,” said Wallenskog.
Rather than politicians now needing to do something to alleviate the problem, she said what was needed was for civil servants to keep track of the liabilities and make forecasts of future costs.
“We have already asked the 290 local and 20 regional councils if they know what the pension costs will be in the next three or four years, and they do know. But not all of them know how much the debt would be in the next 10 years,” she said.
Tax rises were possible as a result of the pensions burden, Wallenskog said, but only at a minimal level.
“It is possible taxes could rise by one or two tenths of a percent, but only for a couple of years in some municipalities,” she said.