Alecta has announced changes to the huge defined benefit (DB) pension scheme it runs, which will increase the chances of surpluses being handed over to employers, and reduce the scheme’s equity exposure.
The SEK1.3trn (€113bn) occupational pensions firm said this morning (13 December 2024) that its board had decided to change the consolidation policy in the DB pension ITP 2.
“The upper limit for when surpluses can be paid out to corporate customers is being lowered to 170% from 175%, and at the same time the equity portion in the defined benefit pension’s normal portfolio is being reduced to 30% from 35%,” said Alecta, Sweden’s largest pension fund.
The bulk of Alecta’s assets under management are in the DB scheme, whose portfolio amounted to SEK1.03trn at the end of September, while the defined contribution (DC) Alecta Optimal Pension product had SEK301bn under management.
IPE calculates that a five percentage point decrease in Alecta’s DB assets would mean the disposal of SEK51bn of equities – a volume that equates to around 0.5% of total Swedish stockmarket capitalisation.
Fredrik Palm, product manager at Alecta, said: “The change in the consolidation policy is expected to lead to earlier and more stable payment of surpluses to companies.”
However, Alecta said funding was currently below 170%. In September, it was reported at 163%.
“There is no distributable surplus here and now, and it is not certain that there will be, but the probability that there will be increases with these decisions,” Palm noted.
Alecta said the “extensive analysis” that formed the basis for the board’s decision had simulated the asset and liability side of the DB pension up to 2060.
“The analysis simulates the proportion of risk-bearing assets being gradually phased out as the portfolio gets older, and the consolidation interval being gradually reduced,” the Stockholm-based pension fund said.
It added that in the most challenging scenarios, reducing the proportion of risk-bearing assets in the DB pension also made it easier to hedge private customers’ pensions in line with inflation.
Suggesting there are more such changes to come, Palm said: “We foresee a development where the defined-benefit pension will continue with a reduced proportion of risk-bearing assets and a lowered upper limit in the consolidation policy for the next 25 years.”
Changes in the policy were planned to take place every three to five years, he said.
Alecta also announced it was cutting the premium rate for the single premiums paid by companies that finance their ITP 2 pension obligations via the PRI book-reserve model to 1.4% from 1.7%, as a result of falling market interest rates.
The change meant the premium for an average PRI redemption would rise by approximately 5%, it said.
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