The surge in local authority pension costs in Sweden seen in 2023 is set to be reversed to some extent next next year because of the impact of slower inflation, according to the Swedish Association of Local Authorities and Regions (SKR).
A new survey by Skandia showed a SEK42bn (€3.6bn) rise in the total pension debt of municipalities and regions in Sweden from the 2022 to 2023 financial years, with the pensions firm citing the “inflation shock” as having been a key factor in the rise.
Annika Wallenskog, chief economist of SKL, told IPE that inflation had indeed been the cause, due to the fact that local authority pension benefits in Sweden are indexed.
“Some have had a very big increase, since the municipalities and regions sector has around SEK500bn in debt – half of it for the regions and half for the municipalities. And there are only 21 regions, so for them there has been a big impact from this pension debt increase,” she said.
But the ballooning effect of inflation on local authority pension debt was now set to shrink, bringing the associated costs to a lower level than today, Wallenskog said.
“We see that the cost next year is around SEK40bn less than this year, so next year those pension costs won’t have any impact on local authority finances,” she said, adding: “This is a spike, and with inflation already having gone down in the June figures, we already know that the pension costs will be much lower next year.”
Effectively, the pension debt was mostly a problem for the local authorities on paper, she said, because even though the deficit had grown substantially, the authorities were not having to make any actual payments because of it.
“There is no liquidity,” she said.
“But even if it is just on paper, when you look at the regions’ financial results, they are very weak, so this year the local authorities think they will have a deficit of SEK20bn mainly because of pension costs, but also because the high state subsidies that the regions received for health care during the pandemic have now been withdrawn, but many of the costs remain,” Wallenskog noted.
This deficit compared to a loss in 2023 of around SEK10bn, she added.
“For two years in a row the regions will have a deficit and there are other financial burdens affecting them besides pension costs,” she said.
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