SWEDEN - The total pension liabilities of the Swedish local government is SEK156bn (€17bn), according to research from Danske Capital.

The survey of 231 chief financial officers, equivalent to 80% of the 290 Swedish municipalities, revealed the average debt per municipality is approximately SEK553m, although it suggested the "biggest problems" were in the smallest municipalities.

In addition, the survey indicated pension liabilities will increase by 48% by 2015, however 80% of the municipalities included in the research have not allocated additional funds to clear the payments.

Danske Capital's research suggested the increase in pension debt follows the expected increase in pension withdrawals as a large generation of workers will retire in the next decade.

Mikael Nordberg, chief executive of Danske Capital, pointed out as four out of five areas surveyed have not put away money for future pension increases, "this is a giant problem which only grows".

However, the research claimed politicians tend to "sweep the problems under the carpet" as 36% of financial officers believe politicians do not allocate sufficient money to the pensions debt - a view more common in smaller municipalities - while 18% think that pensions are "swept under the carpet".

That said, the findings indicate the amount municipalities have allocated capital for future pension's payments, for example through a pension foundation or similar vehicle, only covers an average of 31% of pension liabilities.

The asset allocation of the municipalities' pension capital includes an average of 23% in Swedish shares and 16% in overseas shares however, on average, the profit on capital has been 4% in the last year - below the municipalities' target of 7.5%.

As a result, Danske Capital suggested many municipalities will have difficulty finding funds when the pensions need to be paid out, and highlighted in the worst cases they may be forced to increase local taxes to raise the money.

Nordberg added: "It seems that the municipalities have not looked at how much profit one needs to have on their capital in order to clear their obligations. The municipalities are clearly underfinanced and they do not reach their profit objectives."

In order to clear the pension liabilities, Danske Capital suggested the municipalities either need to allocate more money to pensions, or target a better profit on their capital by taking higher risks in their asset allocation, such as increasing the proportion invested in shares.

The research also revealed 33% of the municipalities, surveyed by PFM Research, undertook the administration of the pension capital internally, while 53% outsourced the administration, although among the areas which outsourced administration 80% claimed to be "pleased" with the quality of the work.

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