In Norway, independent municipal pension funds have again beaten the dominant provider of local authority pensions on investment returns, amid fierce competition between the different types of provider available in the Nordic country’s public-sector pensions market.
The Norwegian Pension Funds Association (Pensjonskasseforeningen) this morning declared that in the first quarter, independent municipal pension funds had produced an average collective portfolio return of 3.3% — which is higher than the Q1 return announced last week by the NOK1trn (€86.3bn) institution KLP of 3.0%.
The lobby group said municipal pension fund returns had improved over time due to high equities allocations.
Christer Drevsjø, chief executive officer of the Pension Funds Association, said: “The return shows that the pension funds continue to deliver, and that the capital management strategies are well thought out.”
He said the pension fund solution was a suitable one for many Norwegian municipalities, and that they, as well as other public enterprises, could achieve big savings by managing their pension schemes via their own fund — also citing other advantages of the approach.
Municipal pension funds already outperformed KLP in 2023, according to figures collected by the association, with the funds returning an average of 7.66% for the full year compared to KLP’s 6.4% return on the common portfolio.
Although KLP is the biggest provider in the Norwegian municipal pensions sector, competition has been heating up in the last few years with Storebrand having re-entered the market and winning tenders, and the pension fund lobby becoming a stronger voice, promoting the benefits for local authorities of taking the independent pension fund route.
In its first quarter report, KLP acknowledged it had lost customers recently, but said it was developing its offering in line with client feedback.
It reiterated that customers with premium reserves totalling around NOK2.1bn had decided to move their schemes out of KLP with effect from 1 January 2024, but said: “The market situation for public-sector occupational pensions is stable”.
The Oslo-based company said it put “great emphasis on close consultation with its customers to further develop service concepts and online solutions with good pension guidance”.
However, KLP also mentioned the competition case – stemming from a complaint against the Norwegian state by Storeband – that is currently being dealt with by the European Free Trade Association’s (EFTA) compliance authority ESA.
ESA has told Norway it believes there may have been widespread breaches of European Economic Area public procurement law by municipalities failing to put their pension provision out to tender.
In its Q1 report on Thursday, KLP said: “The complaints are still being processed by the ESA, and no formal action has been initiated on either of them.
“In both cases, as part of its information gathering, the ESA has made its preliminary assessments and asked for the government’s comments on these,” it said.
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