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Sweden hints at longer bonds for ageing

SWEDEN – The Swedish central bank has dropped a hint over the possibility of longer-dated bonds in the face of an ageing population.

Noting that changes to the Swedish pensions system should mean more savings being channelled through the securities markets, Riksbank deputy governor Lars Nyberg asked: “How will the markets be able to meet this need?”

“Are new products required, for instance, bonds with a much longer time to maturity, to manage the assets side of the life insurance companies?”

Nyberg, speaking at a conference organised by Dataföreningen in Stockholm, said that individual choices have been introduced into both the state and occupational pension system – “giving the individual some responsibility for management of the savings”.

“These changes stimulate savings and also channel some of the earlier collective savings into savings markets, particularly mutual funds and pension funds.

“The fact that we have had a large inflow of capital into the securities markets is therefore fairly unsurprising. However, one interesting question is what effect the change in population structure will have on savings and on the securities markets in a few years time, when those of us born in the 1940s retire.”

He added: “One decisive factor for the future development of savings is how the pension system will function in practice and what responsibility the individual will have in the future for other parts of the traditional welfare system.

He said the conclusion that demographic changes will increase the need for long-term saving was reinforced by the “transition from allocation-based pension systems to systems that are based to a greater extent on premium reserves”.

Last week the European Investment Bank said it would issue a 25-year 540 million-pound (775 million-euro) bond as part of a product designed by BNP Paribas aimed at protecting UK pension schemes against longevity risk.

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