In a bill to the Swedish parliament the social democratic government proposes new rules for pensions funding in the 288 municipalities (kommuner) and 26 county councils (landsting). The proposition is likely to make the local administrators more interested in funding pensions liabilities and so open up a Skr50bn ($6.3bn) market.

Already 21 municipalities and county councils have made agreements with different investment managers, but many have been awaiting the bill, proposed recently.

Previously the pensions have been paid without funding. The unfunded debts of the municipalities have been described as a ticking bomb, especially in municipalities with a growing number of retirees and with an ageing and diminishing population of tax payers.

With the new legislation for accounting introduced last year, all new liabilities arising each year have to be put on the balance sheet, thus making the growing debt apparent. This will be compulsory by the year 2000 but the new regime has already been introduced in a majority of the municipalities.

In some cases even older liabilities have been funded as a means of making the economy less vulnerable to a shrinking active population.

The new legislation points out that the elected boards on the political level have responsibility for passing a policy for how the funds are to be invested. However there are no precise limits as for the allocation of assets.

The new legislation is expected to open the doors and create a rush for investment consultants and advisers on asset allocation management. So far Wassum Investment Network and William M Mercer investment consulting have been given commissions to advise municipalities in debt calculations, asset liability matching and ratings of funds and managers (see page 31).

According to a government survey the total debt for pension liabilities in the municipalities by 2010 will exceed Skr150bn and by 2030, Skr450bn.

Rough calculations made by the the national organisations for the municipalities and county councils, show that some Skr40-60bn of the total debts may be funded by 2010.

So far Skr5-6bn have been founded by communities throughout the country.

Mikael Nyman

Topics