Swedish roundup: AP7, solvency levels, Q1 performance, AMF survey
SWEDEN - AP7, the national buffer fund with a mandate to manage assets within the Swedish premium pension system (PPM), will close its premium choice (Premievalsfonden) and default (Premiesparfonden) funds this month and begin managing two new low-cost equity and fixed income funds.
Individuals in the premium choice and default funds will be automatically transferred into a new government default fund with a generational (or lifecycle) structure, whereby individuals are invested 150% in equities (through the use of derivatives) until they reach the age of 55 after which they will be gradually moved into fixed income investments.
However, both sets of individuals - some 2.6 million Swedes in the original default fund and 100,000 in the premium choice fund - will be given the ability to opt for an alternative fund by May 18.
They will be able to choose from 800 alternative funds, including the two new low-cost government funds, one invested in equities, the other in fixed income.
The equity and fixed income funds will charge fees of 0.15 and 0.09%, respectively - the lowest within the PPM system. These fees will fall over time as the system becomes bigger and surpluses are built.
The Swedish government believes the change to AP7's mandate will provide those who do not select their own funds better pensions in the long term. Six out of 10 Swedes do not make active choices and many think the choice of 800 funds is too big to navigate.Solvency levels among Swedish insurers continue to rise and are now back in line with those before the financial crises, according to Finansinspektionen, the country's regulator.
Mutual insurers had an average solvency quota of 16 at the end of 2009, while occupational pension providers' quota was 12 and other life and pensions insurers had a quote of three. The average quota across all firms was 13. None had a level below the minimum requirement of one.
The solvency quota is calculated by taking the capital base of the companies and dividing it with the solvency margin.Swedish pension providers continued a positive performance trend in the first quarter of 2010.
AI Pension, the pension fund for architects and engineers, returned 3.3% for the first quarter, compared to 1.1% loss for the same period last year. The performance was driven by equities, which was the best performing asset class, returning 5.6%, followed by hedge funds at 2.5%. Total assets under management for the fund at the end of March amounted to SEK 4.7bn (€482m). The solvency level was 140%.
SPP Livförsäkring, the life and pension insurer returned 3.5% for the first quarter with assets under management increasing to SEK138bn from SEK115bn for the same period last year. In addition, SPP's premium income increased by 6% to almost SEK2.5bn. Norwegian insurer Storebrand, which owns SPP, said in a statement that the results were positively affected by recently implemented streamlining measures.
Skandia Liv continued in the same fashion as its competitors, returning 4.1% in the first quarter, compared to a loss of 1.4% during the same period in 2009. Assets under management increased to SEK290bn from SEK248bn a year ago. The solvency level was 166%, up from 140% for the same period last year. Operational costs amounted to SEK300m, a reduction of SEK100m, compared to last year.
AMF returned 3.1% in Q1 2010, which compared well to the 1.5% loss for the same period last year. AMF has the strongest financial position of all the Swedish pension providers, with a solvency level of 228%. Assets under management in its life business increased to SEK292.2bn compared to SEK282.8bn at the beginning of the year. Total assets under management amounted to SEK344bn.
Premium income also increased significantly to SEK8.1bn from SEK6.8bn during the same period last year. The premium income was boosted by new money from the so-called SAF-LO pension provision, which came into force in 2008, where AMF is the largest provider.More than a quarter (27%) of Swedes between the ages of 21 to 35 do not have any form of occupational pension provision, according to a study by pension provider AMF.
It was also discovered that the younger the individual, the more likely they were to not have a pension.
AMF said the tough conditions in the labour market for those in the beginning of their careers made it hard for them to voice their demands.
The level of education was another factor, the firm said, with lower education levels leading to fewer having occupational pensions. In addition, for many young people, retirement seems far away in the future, which makes engagement low in pension issues, AMF concluded.