SWEDEN – Vattenfall, one of Europe's leading energy companies, is dismantling its SEK7bn (€820m) pension foundation in Sweden, bringing pension liabilities back onto its balance sheet.
Vattenfall created a pension foundation, Vattenfall Pensionsstiftelse, in Sweden in 1999, but has now decided to reverse the move as the parent company deemed investments undertaken by the foundation too risky.
A spokesman said: "The purpose of the foundation has never been to match the pension liabilities with assets – in other words, match the financial investments undertaken by the foundation with the employer pension liabilities – so as to neutralise duration and inflation risk."
He also pointed out that tightening regulation, such as the new occupational pensions directive proposed by EIOPA, and monitoring by the country's regulator would increase administrative costs for the foundation.
The spokesman noted that Swedish law since 2007 had prohibited employers from topping up pension foundations with tax-exempt capital if the foundations had negative returns.
"This has meant that, since 2008, Vattenfall has not been able to allocate more assets to the foundation," the spokesman said.
He said Vattenfall no longer wished to finance its pension liabilities in advance but wanted the liabilities to be a "natural, long-term financing" of the firm's core activities, which is the way the Swedish ITP2, the national white-collar defined contribution system, is intended to function.
He took pains to emphasise that the foundation had not been closed due to poor returns.
"Vattenfalls Pensionsstiftelse has done fairly well in its assets management operations since start 1999, mainly through their own 'market timing'," he said.
The foundation has returned almost 6% annually, compared with its benchmark's 4%.
The foundation assets have been invested mainly in Swedish fixed income, as well as listed international and Swedish equities.
Both an in-house team and external assets managers have managed assets.
The spokesman declined to disclose the names of the external providers, types of mandates or contracts.
"All asset managers have been informed about the coming changes," he said, adding that it was worth noting that the foundation had on the whole been satisfied with its providers.
The transfer of the SEK7bn of assets from the foundation to the sponsoring company will be made through liquid assets in stages, with the majority transferred within the next six months.
The spokesman said the change would have no effect on members' pension rights.
The pensions continued to be insured with PRI Pensionsgaranti, a Swedish credit insurance and administrative services provider for occupational pensions, whether the pensions were in the form of a foundation or not, he said.