1.

Results of the Pension System in Brief

The national income-based pension system in Sweden consists of inkomstpension and premium pension. The inkomstpension and premium pension are defined-contribution, financially stable pension systems. Given this design, liabilities and assets normally change in equal measure; in other words, each year net income is more or less equal to zero. In principle, this is always true of the premium pension system, while inkomstpension allows substantial differences between liability and asset development from year to year, providing that accumulated deficits are not allowed to remain in the system. In this report, inkomstpension also includes ATP pension, which is a defined benefit scheme.

The inkomstpension system is a pay-as-you-go system, and pension contributions paid in are used to pay retirees in the same year. The surpluses or deficits resulting from pension contributions being higher or lower than pension disbursements are managed by the First–Fourth National Pension Funds, which together with the Sixth National Pension Fund form the buffer fund.

The assets of the system are the value of future pension contributions, referred to as the contribution asset, and the buffer fund. The contribution asset is calculated as follows: contribution revenues are multiplied by the expected average time that one krona will remain in the pension system, referred to as turnover duration.

The pension liability consists partly of a liability to the economically active and partly of a liability to retirees. The liability to the economically active is mainly the sum of the pension balances of everyone (the last row in the account statement of everyone’s Orange Envelope). The pension liability to retirees is the expected total of all pensions paid to today’s pensioners for the rest of their lives. The pension liability changes primarily with the annual indexation of pensions and pension account balances. Indexation is determined by the change in the average income in Sweden, in combination with the balance ratio in years when balancing is activated.

The result of the inkomstpension system is affected by numerous key economic and demographic factors. In the short run the development of employment is the most important factor, but the effect of the stock and bond markets on the buffer fund is also of significance, particularly in case of major changes. In the long run demographic factors are most important.

The result for 2020 was SEK 48 billion. Together with a capital surplus of SEK 758 billion from 2019, this yields a capital surplus of SEK 806 billion at the end of 2020. The result for the year is by definition due to assets increasing more than liabilities in 2020. Assets exceed liabilities by just over 8 percent. The system’s balance ratio for the financial and calculation year 2020 is calculated at 1.0824. The system is not in a balancing period, and therefore the balance ratio will not affect the indexation of pensions and pension balance for the (balancing) year 2022.

Assets in 2020 increased over the year by SEK 377 billion (3.7 percent). Contribution assets increased by SEK 277 billion (3.2 percent). The value of the change in turnover was SEK 94 billion and the value of the change in contribution revenue was SEK 183 billion. The return on funded capital of the buffer fund was SEK 133 billion (8.3 percent).

The year 2020, like 2019, was a year when pension disbursements, fund expenses and administrative costs exceeded pension contributions in the inkomstpension system. The difference, primarily net lending¹, produced a negative contribution of SEK 33 billion.

Pension liability in 2020 increased by almost SEK 329 billion (3.5 percent). The liability increases with new contributions as these give rise to future pensions. Similarly, the liability decreases with pension disbursements, which can be seen as an amortisation. The liability increases with the allocation of inheritance gains but decreases with the amount of inheritance gains received. The cost of administration reduces the insured’s assets and hence the liability. The net result of the above was a reduction in liability of SEK 21 billion.

Liability recalculation, indexation, increased liability to the gainfully employed by SEK 340 billion. Liability to pensioners is affected by changes in average life expectancy. Compared to 2019, the average expected payout duration (economic life expectancy) for a 65-year-old increased from 16.77 to 16.81 years, or by just over 16 days. The reason why economic life expectancy has increased despite the coronavirus pandemic is that a three-year average is used, and economic mortality was higher in 2017 than in 2020. The increased expected payout duration in itself meant that liability increased by SEK 10 billion.

The premium pension system is a funded system where pension savers and pensioners themselves choose the funds in which to invest their premium pension moneys. The pension is disbursed from the proceeds of selling off accumulated capital. The assets consist of the investments in funds by pension savers and pensioners. The pension liability to the economically active and to retirees is related primarily to fund shares. Changes in the value of fund shares affect the assets of pension savers and pensioners in the system, directly and to an equal degree. With traditional insurance, the pension liability is the value of the remaining guaranteed disbursements. That value is calculated with assumptions about future return, life expectancy and operating costs. In the premium pension system all payments in and out of the system and all changes in value have in principle the same effect on system assets and liabilities. The system’s positive balance belongs to the pension savers and pensioners and is placed in the consolidation fund in equity. Moneys in the traditional insurance consolidation fund are paid out as a capital bonus when pensions are paid. Moneys in the consolidation fund for fund insurance are deducted from the following year’s contributions to cover operational costs.

The value of the premium pension assets of pension savers and pensioners on December 31, 2020 amounted to 1,583 billion, while the value in temporary management was SEK 42 billion. The increase in value for fund insurance was 6.4 percent in 2020.

Profit for the year 2020 amounted to SEK 2,829 million. The result for the entire insurance business deteriorated by SEK 2,727 million. This is mainly explained by the positive return on capital in traditional insurance this year amounting to SEK 61.7 million, compared to 2019 when the return was SEK 4,335 million. The increase in value of other investment assets amounted to SEK 2,243.5 million, which is an increase of SEK 336.5 million. Insurance benefit payments increased by SEK 250 million and amounted to SEK 1,682 million (1,432).

Operating costs amount to SEK 535.9 (578.5) million and have thus decreased by SEK 42.5 million. The cost of purchased services decreased and is mainly due to the purchase of IT services, administrative services, consultancy costs decreased in 2020.

Assets in 2020 increased by SEK 133 billion during the year. The change in insurance assets refers in principle to newly earned pension credit, positive change in value, allocated management fees and payment of pensions as mentioned above.

The pension liability in 2020 increased by SEK 133 billion. The change in pension liability refers principally to the same newly earned pension credit, positive change in value, allocated management fees and payment of pensions as mentioned above.