Alecta announced that pension payments from its defined benefit (DB) scheme will rise by nearly 11% next year because of soaring inflation, while citing rising market interest rates as one of the factors behind a 40% reduction in DB premiums paid in 2023 by its corporate customers.

The SEK1.12trn (€102bn) occupational pension fund said this morning: “The defined benefit pension under payment will be increased by 10.84% as of 1 January 2023,” adding that this would affect 641,000 pensioner in the ITP scheme – the scheme for salaried employees in the private sector.

The percentage increase corresponded to the rate of inflation in the last year, Alecta said.

At the same time, it said, the value of accrued pensions not yet in payment would be increased by the same amount, affecting 960,000 customers.

Alecta said it had increased pension payments in line with inflation since the introduction of the ITP plan in 1960.

Separately, Alecta announced that its board of directors had decided to introduce a contribution reduction for 2023 for DB retirement and family pensions of 40% from the current level, as well as to continue providing premium reductions for risk insurance.

In total, the firm said, the contribution and premium reductions amounted to around SEK7.9bn, corresponding to about 1.5% of annual total payroll for companies in the ITP scheme.

Added to this was, it said, a further SEK3.3bn reduction in costs for the companies as an effect of the increase in accrued pension rights.

“In total, Alecta is providing premium reductions that cut the companies’ costs by SEK11.2bn in 2023,” the firm said.

Alecta said this was now the second year in a row that it was lowering the premiums for companies, having successively increased contributions for the DB ITP2 scheme from 2011 to 2020 as a result of lower market interest rates and increased life expectancy.

“For 2022, the premiums were reduced by introducing a premium reduction of 30%,” said Alecta, adding: “The recent rise in interest rates has led to a greatly-increased level of consolidation for Alecta’s defined benefit insurance, which enables further reductions”.

Fredrik Palm, product manager at Alecta, said the provider’s financial position was very strong, with the consolidation level on 30 September 2022 amounting to 189% – therefore exceeding by a good margin the 150% level needed to be able to grant contribution reductions, according to the firm’s consolidation policy.

Magnus Billing, Alecta’s chief executive officer, said: “It is very good that Alecta, through these premium reductions, can contribute to Swedish companies reducing their costs, especially when we are in troubled economic times.”

The reductions were a clear example of the stability and strength of Alecta’s mutual model, he said.

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