EUROPE - Senior chiefs from some of Scandinavia's biggest pension funds painted a gloomy picture of the future of the Nordic social welfare model at a recent Nordic Chambers of Commerce event in London.

Brian Mikkelsen, Denmark's secretary of state for economic and business affairs, said: "The western, and especially the Nordic, model is under huge pressure."
Denmark passed its Fiscal Consolidation Agreement in June this year, and Mikkelsen said the biggest lesson from the sovereign debt crisis was that similar programmes of spending-cuts and tax reform had to be pursued across Europe.

He emphasised the importance of pro-growth measures, pointing to his government's efforts to ease the tax burden on Danish business, improve the education of the workforce and offer better access to capital for SMEs and entrepreneurs.
Mikkelsen said his country was "struggling to remain competitive" and that it needed to retain "the young, talented generation" that is "staying away from our countries now" - a trend that, combined with shorter working weeks and unsustainably high wages, has seen Denmark's productivity growth over the last decade slip toward the bottom of OECD league tables.
Matti Vuoria, chief executive and president of Finland's Varma Mutual Pension Insurance Company, largely agreed on the problems facing the region.

"The Nordic welfare system is excellent - but it cannot be sustained with these productivity levels," he said.

While he said Finland was in a relatively strong position post-crisis, he warned that the country faced the same challenges as its Nordic neighbours - growing welfare payments, the uncertainty of global demand and the still-looming threat of sovereign debt crises.
"I have been a civil servant for many years, and in the past, when representatives of certain countries would tell you they were going to look here or there [for spending cuts], they would do so smilingly," he said.

"For the first time now, I really see the seriousness of those representatives."

Erik Valtonen, CIO of Sweden's AP3 buffer fund, also agonised over record-low bond yields, volatile and sideways equity markets and inflation options markets showing confusion between expectations of inflation and deflation.

"Making rational portfolio choices is difficult when economic uncertainty is so high," he said.

"We are quite concerned we won't be able to generate our target [of 4% long-term real returns]."

Valtonen drew attention to the contradictions of "information funneling" - while the whole world has access to instantaneous information flow, no one has the capacity to process any more than a small amount of that information.

"This is how the very old news of Greek over-indebtedness could go almost unnoticed by the markets for years and suddenly arrive on our desks this spring," he said.

ATP chief Lars Rohde said: "We need a new pensions paradigm."

He made a case against individual savings accounts and in favour of hybrid collective pension schemes as the only just way to manage pension risks, and he put forward ATP's lifetime annuities, guaranteed at prevailing market interest rates, as a model.

He tied this in to the need for "a sound regulatory framework" and remarked upon the "wisdom" of the Danish regulator's decision to introduce marking-to-market for pension liabilities in 2002.

"It means every Danish pension fund is solvent today - and that is no little accomplishment," he said.