ORANGE REPORT Annual Report of the Swedish Pension System

Transcription

1 ORANGE REPORT 2016 Annual Report of the Swedish Pension System

2 What is the Orange Report? The Orange Report 2016 describes the financial status of the national income-based pension pension at year-end 2016, developments during 2016, and three future scenarios. In addition to national inkomstpension and national premium pension there are also occupational pensions and pensions paid from private pension plans. For these, data is currently available only up to The following table shows contribution/premium income and payments in 2015, as well as funded capital at year-end 2015 for all three types of pension. However, the amounts for occupational and private pensions are only approximate. Occupational pensions may be secured by other means than through premium payments. For example, the employer may report occupational pension rights as a pension liability in the company balance sheet. In addition, there are funds set aside for occupational pension in a large number of pension funds. These funds are not included in the table below. Total annual fees and premiums for national pension, occupational pensions, and private pensions are estimated at 463 billion SEK, of which the national pension s 284 billion SEK represents 61 percent. The wage bill in Sweden amounted to approximately 1,630 billion in 2015 (including earnings of the self-employed). This means that we set aside an amount equal to 28 percent of our salaries for various pensions. Funded capital in the national pension amounted to 2,127 billion on 31 December That equates to approximately 43 percent of total funded pension capital in Sweden. The Swedish Pension Agency paid out 270 billion SEK in income and premium pension in This represents 69 percent of total pensions paid out that year according to the table below. In 2015, in addition to inkomstpension and premium pension, the Swedish Pensions Agency paid out guarantee pension to the amount of 16 billion SEK. Other pension-related benefits paid to the elderly are income-based widow s pension to the amount of 12 billion SEK, housing supplement to the amount of 9 billion SEK and support for the elderly to the amount of 0.8 billion SEK. These benefits are financed from the state budget and are not reported in the Orange Report. The Orange Report covers well over half of Sweden s pension business regarding contributions and disbursements but a somewhat lower proportion regarding funded capital. This is because the inkomstpension scheme is a pay-as-you-go system with a buffer fund and not a fully funded pension system. Swedish Pensions 2015 * billions of SEK Premiums Capital Disbursements Income-based pension 284 (61 %) 2,127 (43 %) 270 (69 %) Occupational pension 170 (37 %) 2,369 (48 %) 98 (25 %) Private pension 9 (2 %) 478 (10 %) 21 (5 %) Total 463 (100 %) 4,974 (100 %) 389 (100 %) * Disbursements for occupational pension and private pension refer only to persons aged 65 or over. Premiums Capital Disbursements National pension Occupational pension Private pension insurance

3 ORANGE REPORT Annual Report of the Swedish Pension System 2016 Swedish Pensions Agency Stockholm 2017

4 Further information on the Swedish national public pension system is available at the Swedish Pensions Agency website: For information on the National Pension Funds, please see the websites of the respective funds: and (premium pension). We at the Swedish Pensions Agency thank the readers of Orange Report for their questions and views, which have helped enhance the quality of the report. Published by the Swedish Pensions Agency Editor: Ole Settergren and Karl Birkholz Project Manager: Estrella Zarate Technical Project Manager: Karl Birkholz Translation: Peter Nickson Adaptation and analyses of data: Birgit Axelsson, Karl Birkholz, Anders Carlsson, Sten Eriksson, Stefan Granbom, Erik Granseth, Inger Johannisson, Hans Karlsson, Hanna Karlsson Ruiz, Tommy Lowén, Danne Mikula, Bengt Norrby, Niklas Näsström and Estrella Zarate Also participating in the preparation of the report: Anna Sköld and Sten Eriksson Graphic production: Karl Birkholz, Pensionsmyndigheten Photo page 5: Magnus Glans Printed by: DanagårdLiTHO AB, Ödeshög Paper: Arctic Volume 250 gr (cover), 115 gr (insert) Cover: Bengt Norrby and Anna Sköld The cover consists of a selection of pension savers born between 1965 and Each pension saver is represented by a single dot. Orange dots are pension savers with a portfolio of their own while red dots are pension savers with AP7 Såfa (the state alternative to the private investment funds). The dots are placed according to value development and account value. In the picture value development is displayed horizontally and account value vertically. Swedish Pensions Agency P.O. Box SE Stockholm, Sweden Telephone: registrator@pensionsmyndigheten.se ISSN X

5 Contents 1 Results of the Pension System in Brief 7 2 Income Statement and Balance Sheet 10 3 Accounting Principles 13 4 How the National Pension System Works 19 5 Costs of Administration and Capital Management 35 6 Changes in the Value of the Pension System 43 7 Three Scenarios for the Future of the National Pension System 51 8 Notes and Comments 71 A Calculation Factors 97 B Mathematical Description of the Balance Ratio 108 C List of Terms 113 SWEDISH PENSIONS AGENCY ORANGE REPORT

6 4 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

7 Facts, not Alternative Facts SWEDISH PENSIONS AGENCY ORANGE REPORT

8 0 CONTENTS 6 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

9 1 Results of the Pension System in Brief Sweden s income-based pension consists of the inkomstpension and the premium pension. The inkomstpension referred to in this report includes the ATP (supplementary pension) which is being gradually phased out. The inkomstpension and the premium pension are defined-contribution, financially stable pension systems. With this design, liabilities and assets normally change by the same amount; in other words, the net income is more or less equal to zero. In principle, this is fully applicable to the premium pension system, whereas the inkomstpension allows substantial differences from year to year between the development of liabilities and assets, with the qualification, however, that accumulated deficits are not allowed to remain in the system. Inkomstpension The result for 2016 SWEDISH PENSIONS AGENCY ORANGE REPORT

10 1 RESULTS OF THE PENSION SYSTEM IN BRIEF Assets increased in 2016 During 2016 pension liability increased Payment Age and Economic Annuity Divisors Six-Year Review billions of SEK Calculation year Balancing year Buffer fund, mean value ,067 Buffer fund ,058 1,185 1,230 1,321 Contribution asset 6,828 6,915 7,123 7,380 7,457 7,737 Total assets 7,700 7,873 8,180 8,565 8,688 9,058 Pension liability 7,543 7,952 8,053 8,141 8,517 8,714 Surplus/Deficit Balance ratio Balance ratio Damped balance ratio Mean value of the fund as of December 31 for the past three years. 2 Previous definition of balance ratio (based on three-year average of the buffer fund s market value as of December 31 of each year) 3 Balance ratio (based solely on the buffer fund s market value as of December 31 each year, formerly called financial position ) Premium Pension 8 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

11 1 RESULTS OF THE PENSION SYSTEM IN BRIEF Profit for the year 2016 Assets in 2016 The pension liability in 2016 Six-Year Review millions of SEK Fund insurance 394, , , , , ,304 Traditional insurance 8,870 10,868 12,907 18,091 20,784 26,029 In temporary management 30,191 31,455 32,039 32,899 34,260 36,034 Insurance assets 433, , , , ,376 1,024,367 Pension liability 431, , , , ,386 1,015,464 Net income/loss for the year 1,018 1,052 1,684 2,491 1,003 2,686 SWEDISH PENSIONS AGENCY ORANGE REPORT

12 2 Income Statement and Balance Sheet Inkomstpension, Income Statement and Balance Sheet Income Statement millions of SEK Note Change Change in fund assets 45,840 91,196 45,356 Pension contributions 1 245, ,700 11,197 Pension disbursements 2-264, ,384-17,807 Return on funded capital 3 66, ,633 52,102 Costs of administration 4-1,617-1, Change in contribution asset 77, , ,298 Value of change in contribution revenue 5 333, ,787 5,781 Value of change in turnover duration 6-255,978-59, ,517 Change in pension liability 1-375, , ,877 New pension credit 7-245, ,840-21,095 Pension disbursements 2 264, ,379 17,814 Indexation 8-378, , ,044 Value of change in life expectancy 9-14,907 7,324 22,231 Inheritance gains arising 10 11,996 12, Inheritance gains distributed 10-14,141-14, Deduction for costs of administration 11 1,430 1, Net income/-loss for the year -252, , ,531 1 A negative item (-) increases the pension liability, and a positive item () decreases it, by the amount shown. Balance sheet millions of SEK Assets Note Change Fund assets 12 1,230,294 1,321,490 91,196 Contribution assets 13 7,457,227 7,736, ,326 Total Assets 8,687,521 9,058, ,522 Liabilities and results brought forward Closing results brought forward 170, , ,113 Opening results brought forward 423, , ,418 Net income/-loss for the year -252, , ,531 Pension liability 14 8,516,563 8,713, ,409 Total Liabilities and results brought forward 8,687,521 9,058, , ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

13 Premium Pension, Income Statement and Balance Sheet Income Statement millions of SEK Note Change Change in fund assets 86, ,439 45,104 Pension contributions 1 38,700 39,855 1,155 Pension disbursements 15-5,557-6,962-1,405 Return on funded capital 16 53,559 98,958 45,399 Costs of administration Change in pension liability 1-85, ,753-43,421 New pension credit 18-38,700-39,855-1,155 Pension disbursements 15 5,557 6,962 1,405 Change in value 16-52,757-96,402-43,645 Inheritance gains arising 19 1,879 2, Inheritance gains distributed 19-1,879-2, Deduction for costs of administration Net income/-loss for the year 1,003 2,686 1,683 1 A negative item (-) increases the pension liability, and a positive item () decreases it, by the amount shown. Balance sheet millions of SEK Assets Note Change Insurance assets ,376 1,024, ,990 Fund insurance 841, , ,971 Traditional insurance 20,784 26,029 5,245 Temporary management 34,260 36,034 1,774 Other assets 22 4,352 5,614 1,262 Total Assets 900,728 1,029, ,252 Liabilities and results brought forward Closing results brought forward 23 6,471 8,522 2,051 Opening results brought forward 1 5,468 5, Net income/-loss for the year 1,003 2,686 1,683 Liabilities 894,257 1,021, ,201 Pension liability ,386 1,015, ,078 Other liabilities 25 4,871 5,994 1,123 Total Liabilities and results brought forward 900,728 1,029, ,252 1 Opening results brought forward differs from Closing results brought forward last year, see Note 23. SWEDISH PENSIONS AGENCY ORANGE REPORT

14 2 INCOME STATEMENT AND BALANCE SHEET Inkomstpension and Premium Pension, Income Statement and Balance Sheet Income Statement millions of SEK Change Change in fund assets 132, ,635 90,460 Pension contributions 284, ,555 12,352 Pension disbursements -270, ,346-19,212 Return on funded capital 120, ,591 97,501 Costs of administration -1,984-2, Change in contribution asset 77, , ,298 Value of the change in contribution revenue 333, ,787 5,781 Value of change in turnover duration -255,978-59, ,517 Change in pension liability 1-460, , ,456 New pension credit -284, ,695-22,250 Pension disbursements 270, ,341 19,219 Indexation -431, , ,399 Value of the change in life expectancy -14,907 7,324 22,231 Inheritance gains arising 13,875 14, Inheritance gains distributed -16,020-17,221-1,201 Deduction for costs of administration 1,998 2, Net income/-loss for the year -251, , ,214 1 A negative item (-) increases the pension liability, and a positive item () decreases it, by the amount shown. Balance sheet millions of SEK Assets Change Fund assets 1,230,294 1,321,490 91,196 Insurance assets 896,376 1,024, ,990 Other assets 4,352 5,614 1,262 Contribution assets 7,457,227 7,736, ,326 Total Assets 9,588,249 10,088, ,774 Liabilities and results brought forward Closing results brought forward 177, , ,164 Opening results brought forward 1 428, , ,050 Net income/-loss for the year -251, , ,214 Liabilities 9,410,820 9,735, ,610 Pension liability 9,405,949 9,729, ,487 Other liabilities 4,871 5,994 1,123 Total liabilites and results brought forward 9,588,249 10,088, ,774 1 Opening results brought forward differs from Closing results brought forward last year, see Note ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

15 3 Accounting Principles The data on the financial position of the inkomstpension have been presented previously in the annual report of the Swedish Pensions Agency. The audit of the information in the balance sheet and income statement is performed in connection with the confirmation of the Pensions Agency s annual report. Information concerning the premium pension has also been presented previously in the annual report of the Pensions Agency. However, certain adjustments and simplifications of the information on the premium pension have been made to facilitate comparisons between the two systems. Regulations and Guidelines SWEDISH PENSIONS AGENCY ORANGE REPORT

16 3 ACCOUNTING PRINCIPLES Where Do the Figures Come From? Principles for Valuation of Assets and Liabilities 14 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

17 3 ACCOUNTING PRINCIPLES Valuation of Inkomstpension Assets 2014/15:125, A Smoother and More Timely Development of Income Pensions SWEDISH PENSIONS AGENCY ORANGE REPORT

18 3 ACCOUNTING PRINCIPLES Valuation of Inkomstpension Liabilities t t + 1 t + 1 t ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

19 3 ACCOUNTING PRINCIPLES Valuation of Premium Pension Assets and Liabilities SWEDISH PENSIONS AGENCY ORANGE REPORT

20 18 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

21 4 How the National Pension System Works The principles of the inkomstpension and the premium pension are simple. A portion of your earnings each year is set aside in two different accounts. The pension is calculated on the basis of how much money you have in your accounts and how many years you are expected to live from the time when you start taking out your pension. The purpose of this section is to provide those who so desire with somewhat more advanced knowledge than these elementary basic premises. Almost Like Saving at the Bank but Entirely a Form of Pension Insurance One Krona of Pension Credit for Each Krona Contributed SWEDISH PENSIONS AGENCY ORANGE REPORT

22 4 HOW THE NATIONAL PENSION SYSTEM WORKS Who Pays the Contribution? Where Does the Contribution Go? 20 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

23 4 HOW THE NATIONAL PENSION SYSTEM WORKS Funds in the Premium Pension System in 2016 and Capital Managed December 31, billions of SEK Number of registered Managed capital funds Equity funds Mixed funds Generation funds Interest funds AP7 Såfa/Premium Savings Fund Total Interest on Contributions That Gave Rise to Pension Credit income index A Rate of Interest Other Than the Income Index Balancing SWEDISH PENSIONS AGENCY ORANGE REPORT

24 4 HOW THE NATIONAL PENSION SYSTEM WORKS = Figure 4.1 Balancing Concept description Index 115 BT>1, higher rate of indexation Balance index BT<1, lower rate of indexation 100 Income index Time BT Balance ratio 22 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

25 4 HOW THE NATIONAL PENSION SYSTEM WORKS Figure 4.2 Actual balancing Index Balance index Higher rate of indexation Lower rate of indexation Income index Year BT Balance ratio Pensions Reduced by Costs of Administration How is the Inkomstpension Calculated? SWEDISH PENSIONS AGENCY ORANGE REPORT

26 4 HOW THE NATIONAL PENSION SYSTEM WORKS How Is the Premium Pension Calculated? Guaranteed Pension 24 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

27 4 HOW THE NATIONAL PENSION SYSTEM WORKS Figure 4.3 Income-related Pension and Guaranteed Pension Guaranteed pension Income related pension 3.07 (11,343) Unmarried 2.72 (10,054) Married 2.13 (7,863) 1.90 (7,014) 1.00 (3,692) (4,208) 1.26 (4,652) 2.72 (10,054) 3.07 (11,343) Annual pension in price-related base amounts (monthly pension in SEK, 2016) = = ( ) SWEDISH PENSIONS AGENCY ORANGE REPORT

28 4 HOW THE NATIONAL PENSION SYSTEM WORKS ATP Proportion Granted a National Pension at Ages * percent Birth cohort Total Avg age * The proportions are for new retirees in relation to the potential number of retirees as of December Ages are as of December 31 of the year when the pensioner began drawing an inkomstpension/guaranteed pension. Forecast for the highest age groups, forecast in italics. 26 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

29 4 HOW THE NATIONAL PENSION SYSTEM WORKS The National Pension System in 2016 in Illustrations and Figures Incomes, Pension Credit and Pension Disbursed incomes with no ceiling Figure 4.4 SEK 450, , , , , , , ,000 50,000 Average income, pension credit earned and pension disbursed Age Incomes, no ceiling PGI PGB Pr IP Pr TP Pr PP IP TP PP GARP PGI Pension-qualifying income Pr TP Pension credit, ATP TP ATP PGB Pension-qualifying amounts Pr PP Pension credit, premium pension PP Premium pension Pr IP Pension credit, inkomstpension IP Inkomstpension GARP Garanteed pension SWEDISH PENSIONS AGENCY ORANGE REPORT

30 4 HOW THE NATIONAL PENSION SYSTEM WORKS Figure 4.5 Average income, pension credit earned and pension disbursed, women 450, , , ,000 SEK 250, , , ,000 50, Age Incomes, no ceiling PGI PGB Pr IP Pr TP Pr PP IP TP PP GARP Figure 4.6 Average income, pension credit earned and pension disbursed, men 450, , , ,000 SEK 250, , , ,000 50, Age Incomes, no ceiling PGI PGB Pr IP Pr TP Pr PP IP TP PP GARP 28 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

31 4 HOW THE NATIONAL PENSION SYSTEM WORKS Earned Income Figure 4.7 Earned Income for Women and Men, Income Year 2015 Women Men Total 1,000, , , , ,000 SEK 500, , , , , % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % 100 % Refers to tax-assessed earned income (wages and salaries, income from active and passive business operations, sickness cash benefits, parental allowances, sickness and activity compensation, unemployment compensation etc.). The income is before deduction of the individual pension contribution and is shown for persons with incomes above the minimum for the obligation to file a tax declaration, 42.3 percent of the price-related base amount. The horizontal line at SEK 468,900 designates the ceiling on contributions. Average Earned Income and Pension-Qualifying Income, Income Year 2015 SEK Tax-assessed earned income Pension-qualifying income Women 260, ,300 Men 331, ,800 Total 296, ,900 SWEDISH PENSIONS AGENCY ORANGE REPORT

32 4 HOW THE NATIONAL PENSION SYSTEM WORKS Pension Credit for the Inkomstpension and the Premium Pension Average Pension Credit Earned, 2015 SEK Inkomstpension Premium pension Total Women 36,900 5,600 42,500 Men 39,900 6,200 46,100 Total 38,400 5,900 44,300 Figure 4.8 Average Pension Credit Earned, Women and Men, 2015 Inkomstpension and premium pension Inkomstpension Women Men SEK 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Age The horizontal line at SEK 44,300 shows the average for all individuals. 30 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

33 4 HOW THE NATIONAL PENSION SYSTEM WORKS Pension-Qualifying Amounts Figure 4.9 Pension-Qualifying Amounts, Income Year 2015 percent of pension base Study Child care years Sickness or activity compensation 18 % 16 % 14 % 12 % 10 % 8 % 6 % 4 % 2 % Women Men 0 % Age Pension Liability SWEDISH PENSIONS AGENCY ORANGE REPORT

34 4 HOW THE NATIONAL PENSION SYSTEM WORKS Figure 4.10 Pension liability, women and men, at year-end 2016 Women Billions of SEK Men Age Akt PP Akt TP Akt IP Pens PP Pens TP Pens IP Akt PP Premium pension, economically active Pens PP Premium pension, retirees Akt TP ATP, economically active Pens TP ATP, retirees Akt IP Inkomstpension, economically active Pens IP Inkomstpension, retirees Average Pension Liability, 2016 SEK Inkomstpension Premium Pension Total Women 982, ,000 1,095,300 Men 1,147, ,300 1,283,000 Total 1,065, ,400 1,190, ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

35 4 HOW THE NATIONAL PENSION SYSTEM WORKS Figure 4.11 Average Pension Liability, 2016 Inkomstpension and premium pension Inkomstpension Women Men SEK 2,400,000 2,200,000 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , , Age The horizontal line at SEK 1,190,300 shows the average for all individuals. SWEDISH PENSIONS AGENCY ORANGE REPORT

36 4 HOW THE NATIONAL PENSION SYSTEM WORKS Pension Disbursements Figure 4.12 Pension Disbursements, Women and Men, December 2016 Inkomstpension and ATP Guaranteed pension Premium pension 25,000 Women Men Total 20,000 15,000 SEK 10,000 5, , , ,000 1,500,000 Number 34 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

37 5 Costs of Administration and Capital Management Accounting for Total Costs Inkomstpension costs SWEDISH PENSIONS AGENCY ORANGE REPORT

38 5 COSTS OF ADMINISTRATION AND CAPITAL MANAGEMENT Premium pension costs 36 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

39 5 COSTS OF ADMINISTRATION AND CAPITAL MANAGEMENT Costs and Charges of the Old-Age Pension System, 2016 millions of SEK Insurance administration Inkomstpension Premium pension Total Pension administration Payments to other agencies Amortization and interest implementation loan Total Insurance administration ,472 Capital management costs and charges Operating expenses of the National Pension Funds (reported gross) Management fees 1,219 2,033 3,252 Fixed management fees (reported net) Performance-based fees Transaction costs Total Capital management costs and charges 2,398 2,461 4,859 Total 3,259 3,072 6,331 1 The amount for the inkomstpension refers to actual cost, whereas the amount in Note 4 refers to the compensation paid by the National Pension Funds for costs of administration. 2 This item represents fees that the National Pension Funds pay only if a particular manager achieves a certain agreed result. 3 Transaction costs refer to brokerage and clearing fees charged on the stock and derivatives market. These charges are included directly in the transaction and have a negative effect on the return earned by the funds. Interest and foreign-currency transactions are paid for through the difference between buying and selling prices and thus cannot be reported as a separate charge. The calculation of premium pension transaction costs is now based on a selection of the funds in the system. The sample represents 70 percent of total fund assets. SWEDISH PENSIONS AGENCY ORANGE REPORT

40 5 COSTS OF ADMINISTRATION AND CAPITAL MANAGEMENT Development of Costs Costs of the Inkomstpension millions of SEK Insurance administration Pension administration Payments to other agencies Total Insurance administration Capital management costs and charges Operating expenses of the National Pension Funds (reported gross) Management fees ,117 1,273 1,219 Fixed management fees (reported net) Performance-based fees Transaction costs Total Capital management costs and charges 1,752 2,023 2,238 2,508 2,398 Total 2,623 2,852 3,109 3,376 3,259 1 The amount for the inkomstpension refers to actual cost, whereas the amount in Note 4 refers to the compensation paid by the National Pension Funds for costs of administration. 2 See the explanation in the table Total Costs and Charges of the Old-Age Pension System Costs of the Premium Pension millions of SEK Insurance administration Pension administration Payments to other agencies Amortization and interest implementation loan Total Insurance administration Capital management costs and charges Management fees (net reported) 1,371 1,646 1,868 2,029 2,033 Transaction costs Total Capital management costs and charges 1,582 1,908 2,197 2,444 2,461 Total 2,018 2,396 2,756 3,030 3, ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

41 5 COSTS OF ADMINISTRATION AND CAPITAL MANAGEMENT Figure Insurance Administration, Inkomstpension SEK per insured Year Total Pension administration Collection of contributions, etc. (Swedish Tax Agency) Figure Insurance Administration, Premium Pension SEK per insured Total Pension administration 0 Collection of contributions, etc. (Swedish Tax Agency) Year Figure Capital management costs and charges, Inkomstpension Total SEK per insured 200 Operating expenses of the National Pension Funds (reported gross) 100 Fixed management fees (reported net) Performance based fees Transaction costs Year Figure 5.4 SEK per insured Capital management costs and charges, Premium Pension Year Total Fixed management fees (reported net) Transaction costs SWEDISH PENSIONS AGENCY ORANGE REPORT

42 5 COSTS OF ADMINISTRATION AND CAPITAL MANAGEMENT Capital Management Costs in Relation to Pension Capital Managed Average capital managed billions of SEK Inkomstpension 915 1,008 1,121 1,207 1,276 Premium pension ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

43 5 COSTS OF ADMINISTRATION AND CAPITAL MANAGEMENT Capital Management Costs in Relation to Capital Managed percent Inkomstpension Reported capital management costs Operating expenses of the National Pension Funds (reported gross) Fixed management fees (reported net) Performance-based fees Transaction costs Total Inkomstpension Premium pension Reported capital management costs Fixed management fees (reported net) Transaction costs Total Premium pension Insurance Administration Costs in Relation to Pension Balance/Capital Insurance administration costs percent Inkomstpension Premium pension This also includes the National Pension Funds SWEDISH PENSIONS AGENCY ORANGE REPORT

44 5 COSTS OF ADMINISTRATION AND CAPITAL MANAGEMENT Figure % Premium pension costs and capital Capital 1600 bn SEK 0.8 % Tot.costs 1280 bn SEK 0.6 % 960 bn SEK 0.4 % 0.2 % Adm.costs 640 bn SEK 320 bn SEK 0.0 % Tot.costs Adm.costs Capital Costs of administration including capital management costs Costs of administration Premium pension capital 0 bn SEK What Difference Do Costs Make in the Size of a Pension? ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

45 6 Changes in the Value of the Pension System Changes In Value During 2016 SWEDISH PENSIONS AGENCY ORANGE REPORT

46 6 CHANGES IN THE VALUE OF THE PENSION SYSTEM Annual Indexation of Inkomstpension Accounts and Return on Premium Pensions percent Income-/balance index Premium pension index The premium pension index measures how much an amount paid into the system at a certain point in time has changed over a certain period (so-called time-weighted return). In this case the period is the same as a calendar year. The return for individual pension savers will normally have varied depending on the funds that they have chosen. Measures of Change in Value in the Premium Pension System Income and Premium Pensions as Complementary 44 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

47 6 CHANGES IN THE VALUE OF THE PENSION SYSTEM Figure 6.1 Value of SEK 100 SEK dec dec dec dec dec dec dec dec dec dec dec dec dec dec dec dec dec Stockholm Stock Exchange, total return index World index of Return on Stocks in SEK Premium pension index Income index/balance index Value of SEK 100 paid into the inkomstpension system in december 2000 (income index) and into the premium pension system (premium pension index), and invested in an average portfolio of stocks on the Stockholm Stock Exchange and on the Global Equity Market, respectively. Return index for the Stockholm Stock Exchange and World Index of Return on Stocks according to Morgan Stanley Capital International Inc., converted into SEK. Change in Value of Pension Savers Accounts SWEDISH PENSIONS AGENCY ORANGE REPORT

48 6 CHANGES IN THE VALUE OF THE PENSION SYSTEM Figure % 6 % 4 % 2 % Average Capital-Weighted Rate of Return for All Premium Pension Savers up to Different Points in Time during the Years Premium pension system Income /balance index 0 % 2 % 4 % 6 % 8 % Year Each point on the curve shows the average annual internal rate of return (after 1995) until the time concerned. 46 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

49 6 CHANGES IN THE VALUE OF THE PENSION SYSTEM Figure % 12 % 11 % 10 % 9 % 8 % 7 % 6 % 5 % 4 % 3 % 2 % 1 % 0 % Average Capital-Weighted Rate of Return Annually from the Saver s First Pension Qualifying Year First income year SWEDISH PENSIONS AGENCY ORANGE REPORT

50 6 CHANGES IN THE VALUE OF THE PENSION SYSTEM Figure 6.4 Pension Savers who Began Earning Pension Credit in the Premium Pension System 1995, Sorted According to Annual Capital-Weighted Rate of Return up to and including % 0 % 2 % 3.4 % 4 % 6 % 6.4 % 8 % 9.2 % 10 % 12 % Annual average change in value The dashed lines indicate the median and the percentiles for 5 and 95 percent. Nominal Average Annual Change in Value and Inflation, Respectively percent Premium pension index (time-weighted) Premium pension (capital-weighted) Income/balance index (time-weighted) Income/balance index (capital-weighted) Inflation Importance of a Long-Term View 48 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

51 6 CHANGES IN THE VALUE OF THE PENSION SYSTEM Figure 6.5 Real World-Wide Rate of Return and the Development of Swedish Real Earnings per Employee 16 % 14 % 12 % 10 % 8 % 6 % 4 % 2 % Real rate of return, 35 year periods Real rate of return, 10 year periods Earnings/employee, 10 year periods 0 % 2 % Year For each year the curves show the average real total return per year (including dividends) over the preceding 10 and 35 years, respectively, and the percentage change per year in real earnings per employee over the preceding 10 years. SWEDISH PENSIONS AGENCY ORANGE REPORT

52 50 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

53 7 Three Scenarios for the Future of the National Pension System To show how different developments can affect the long-term financial position of the national pension system and the size of pensions, projections are presented for the evolution of the pension system over the next 75 years in. The net contribution Net Lending of the Inkomstpension System * billions of SEK Primary net lending 2016 Net contribution -26 Contribution 257 Pensions -282 Costs of administration etc., net -2 Total Primary net lending -27 Return Interest income 9 Dividends on shares 25 Total Return 34 Net lending 7 * There may be some minor deviations from the National Accounts. SWEDISH PENSIONS AGENCY ORANGE REPORT

54 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM primary Fund strength The balance ratio paying contributions average income return 52 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

55 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Previous changes of calculation rules Net Contribution Figure 7.1 Net Contribution 30 % 25 % Optimistic 20 % 15 % 10 % Base 5 % 0 % Pessimistic 5 % 10 % 15 % Year Contribution revenue less pension disbursements as a percentage of contribution revenue. SWEDISH PENSIONS AGENCY ORANGE REPORT

56 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM The Buffer Fund Fund Strength Figure Fund strength Fund Strength Optimistic Base 0 Pessimistic Year Size of buffer fund divided by pension disbursements the same year. base scenario optimistic scenario 54 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

57 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM pessimistic scenario The Balance Ratio Cumulative balance ratio product * Year Base Optimistic Pessimistic * The cumulative balance ratio product in the current period of balancing. When the product reaches , balancing ends. Beginning with 2019 the balance ratios are based on predictions. SWEDISH PENSIONS AGENCY ORANGE REPORT

58 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Figure Balance ratio Balance Ratio Optimistic Base Pessimistic Year (Contribution asset + buffer fund) / pension liability base scenario optimistic scenario pessimistic scenario 56 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

59 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Figure 7.4 Adjusted Balance Index 1.00 Base/Optimistic 0.95 Balance ratio Pessimistic Year Balance Index / Income Index Premium Pension SWEDISH PENSIONS AGENCY ORANGE REPORT

60 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Figure % Net Contribution Premium Pension 75 % 50 % 25 % 0 % Pessimistic 25 % 50 % 75 % 100 % Base Optimistic Year Contribution revenue less pension disbursements as a percentage of contribution revenue. 58 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

61 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Figure Size of Premium Funds in Relation to Contributions Received during the Corresponding Year Optimistic Base 40 Pessimistic Year SWEDISH PENSIONS AGENCY ORANGE REPORT

62 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Figure % Premium Pension as a Proportion of the Earnings-Related Public Pension Optimistic 25 % 20 % Base 15 % Pessimistic 10 % 5 % 0 % Year Development of Pension Levels for Typical Cases Figure 7.8 Pension in Proportion to Final Earnings, Different Birth Cohorts Inkomstpension ATP Premium pension Life span effect 70 % Base Optimistic Pessimistic 60 % 50 % 40 % 30 % 20 % 10 % 0 % Birth cohort ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

63 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM base scenario optimistic and pessimistic scenarios Life Expectancy Effect and Alternative Retirement Age SWEDISH PENSIONS AGENCY ORANGE REPORT

64 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Alternative Retirement Ages and Time Spent Retired * Birth cohort born in reaches 65 in Life expectancy at 65 Alternative age of retirement Time spent retired compared to birth cohort yr 5 mo 65 yr 0 mo 17 yr 5 mo 0 yr 0 mo yr 0 mo 65 yr 2 mo 18 yr 10 mo 1 yr 5 mo yr 8 mo 65 yr 4 mo 19 yr 3 mo 1 yr 10 mo yr 3 mo 66 yr 4 mo 19 yr 4 mo 1 yr 11 mo yr 5 mo 67 yr 1 mo 19 yr 1 mo 1 yr 7 mo yr 11 mo 67 yr 6 mo 19 yr 3 mo 1 yr 9 mo yr 5 mo 67 yr 11 mo 19 yr 5 mo 1 yr 11 mo yr 11 mo 68 yr 1 mo 19 yr 7 mo 2 yr 1 mo yr 5 mo 68 yr 5 mo 19 yr 10 mo 2 yr 4 mo yr 10 mo 68 yr 10 mo 19 yr 12 mo 2 yr 6 mo yr 4 mo 69 yr 0 mo 20 yr 1 mo 2 yr 7 mo yr 9 mo 69 yr 4 mo 20 yr 3 mo 2 yr 9 mo yr 2 mo 69 yr 8 mo 20 yr 4 mo 2 yr 10 mo yr 7 mo 69 yr 11 mo 20 yr 7 mo 3 yr 1 mo * Time spent retired refers to expected remaining life span at alternative retirement ages. 62 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

65 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Figure 7.9 Alternative age of retirement Employment Additional time spent in employment Time spent retired Additional time spent retired Birth cohort born in Age The Level of the National Pension in the Projection of the Orange Envelope SWEDISH PENSIONS AGENCY ORANGE REPORT

66 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Figure % 56 % Orange Envelope Disbursement Rates Average Values for Income-Based Pension at Age 65 and at Alternative Retirement Age as a Percentage of Pensionable Final Earnings at alternative pension age 54 % 52 % 50 % 48 % 46 % 44 % at age Year of birth Source: 3,978,698 individual projections in the Orange Envelope Guarantee pension is not included. 64 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

67 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Assumptions in the Calculations for the Three Scenarios Bases for Calculation percent Base Pessimistic Optimistic Inflation Change in average income Real return, net, after fees to fund management companies Premium pension funds Buffer fund National Debt Office Figure Age Population for 1941 and 2016, Projection for 2091 in the Three Scenarios 1941 och 2016 Tre scenarier, Number Women Men Base Optimistic Pessimistic Base Scenario SWEDISH PENSIONS AGENCY ORANGE REPORT

68 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Optimistic Scenario Pessimistic Scenario 66 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

69 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Description of the Assumptions in the Scenarios Figure 7.12 Births, Deaths, Immigration and Emigration, , and Assumptions Through 2091 Base Optimistic Pessimistic Number 200, , , , , ,000 80,000 60,000 40,000 20,000 0 Births Deaths Immigrants Emigrants Year The diagram shows the development of the population since 1930 and the assumptions for 75 years into the future. The large birth cohorts of the 1940 s, 1960 s, 1990 s and 2010 s are evident. The number dying increases each year, not because of rising mortality, but because of a growing population. The peak years of immigration are the 1960 s and 1970 s, when there was substantial immigration of labour, particularly from Finland. There was another peak at the outset of the 1990 s, when many refugees arrived, primarily from ex-yugoslavia. The large immigrant cohorts in recent years are also reflected in the diagram. Figure 7.13 Size of Population Number 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Total Base Optimistic Pessimistic Year The total population increases in both the positive and base scenarios, the reasons being a high birth rate and net immigration. The number of persons over 65 is more or less the same from one scenario to another. The historical data are estimates. SWEDISH PENSIONS AGENCY ORANGE REPORT

70 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Figure 7.14 Support Ratio During and Projection According to Statistics Sweden s Three Scenarios for Optimistic Alternative retirement age Base 1.5 Pessimistic Year For the three scenarios the support ratio is calculated as the number of persons aged years divided by the number aged 65 or older. The support ratio for the base scenario has also been calculated with alternative retirement ages instead of age 65 as a limit. For this curve, a smoothed mean value for the burden of support is used. 68 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

71 7 THREE SCENARIOS FOR THE FUTURE OF THE NATIONAL PENSION SYSTEM Figure 7.15 Real Return on the Buffer Fund, , and Assumptions until 2090 Base Optimistic Pessimistic 20 % Projected 10 % 0 % 10 % 20 % Year The historical return of the buffer fund for the last 55 years. The point between the vertical lines is the median value. The starting point for the upper vertical line is the 75th percentile; the ending point is the maximum value. The starting point for the lower vertical line is the 25th percentile; the ending point is the minimum value. Figure 7.16 Real Growth in Earnings, , and Assumptions until 2090 Base Optimistic Pessimistic 5.0 % Projected 2.5 % 0.0 % 2.5 % Year The development of real earnings for the last 56 years. The point between the vertical lines is the median value. The starting point for the upper vertical line is the 75th percentile; the ending point is the maximum value. The starting point for the lower vertical line is the 25th percentile; the ending point is the minimum value. Source: Swedish National Mediation Office SWEDISH PENSIONS AGENCY ORANGE REPORT

72 70 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

73 8 Notes and Comments Note 1 Pension Contributions SWEDISH PENSIONS AGENCY ORANGE REPORT

74 8 NOTES AND COMMENTS Pension Contributions by Type, 2016 * millions of SEK Inkomstpension Premium pension Central government budget Total 2016 Total 2015 Employer contributions 116,399 34,467 18, , ,302 Contributions for the self-employed 3, ,515 3,483 General pension contribution 112, , ,142 Central government old-age pension contribution 24,718 3, ,543 26,115 Final settlements etc Final settlements in 2016 for Collection loss, settlement Adjustment to accounting of National Pension Funds and premium pension system ,168 Total 256,700 39,855 18, , ,037 * Contributions received by the Swedish Social Insurance Agency/the Swedish Pensions Agency in 2016 and transferred to the National Pension Funds, the premium pension system and the central government budget, respectively. 72 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

75 8 NOTES AND COMMENTS Figure 8.1 Pension Contributions 100 % Inkomstpension PP 75 % 50 % 25 % 0 % 0 % 25 % 50 % 75 % 100 % Employer contributions Contributions for the self employed General pension contribution Central government old age pension contribution SWEDISH PENSIONS AGENCY ORANGE REPORT

76 8 NOTES AND COMMENTS Table A Pension Contributions, Excluding Settlements etc. Allocated by Type of Contribution Base, 2016 * millions of SEK Employer, self-employed, and centr. govt. pension contribution General pension contribution Earned income 1 173, , ,184 Transfer payments, see Table B 11,235 7,587 18,822 Pension-qualifying amounts, see Table C 17, ,308 Total 202, , ,314 * The allocation of the general pension contribution between the two types of contribution base is estimated and is not shown in the accounting systems. 1 Including sick pay and self-employment income, excluding transfer payments. Total Table B Pension Contributions for Transfer Payments, 2016 * millions of SEK Cent. govt. pension contrib. General pension contrib. Sickness cash benefit 4,000 2,701 6,701 Rehabilitation cash benefit Allowance for care of close relatives Work injury compensation, etc Parental insurance 3,733 2,520 6,253 Care allowance Unemployment cash benefit etc. 2,741 1,851 4,592 Educational allowance Artists Board Allowance to disease carriers Total 11,235 7,587 18,822 * The allocation of the general pension contribution among the different types of transfer payments is estimated and is not shown in the accounting systems. Total 74 ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY

77 8 NOTES AND COMMENTS Table C Pension Contributions Paid for Sickness/Activity Compensation and Pension-Qualifying Amounts, 2016 millions of SEK Sickness and activity compensation Amounts credited for years with small children Amounts credited for study Total Amount refers to contributions for disbursements of both pension-qualifying benefits and pension-qualifying amounts. In both cases the contribution is 18.5 percent. 2 A minor portion of amounts credited for study consists of pension-qualifying income. Notes and Comments Regarding the Inkomstpension Note 2 Pension Disbursements etc. ATP and Inkomstpension Disbursements and Amounts Transferred to the European Community millions of SEK Pension disbursements 264, ,379 ATP disbursements 174, ,971 Inkomstpension disbursements 90, ,408 Transfers to European Communities 12 5 Total 264, ,384 SWEDISH PENSIONS AGENCY ORANGE REPORT

78 8 NOTES AND COMMENTS Note 3 Return on Funded Capital Return on Funded Capital of the First Fourth and Sixth National Pension Funds, 2016 * millions of SEK First Second Third Fourth Sixth * Total 2016 Total 2015 Stocks and shares 18,748 18,494 21,430 22,705 1, ,290 56,004 Dividends received 6,086 6,432 5,509 6, ,817 21,062 Gain/-loss, listed and unlisted stocks and shares, net 12,662 12,062 15,921 16,223 1, ,473 34,942 Bonds and other interest-bearing securities 4,317 5,500 4,796 3, ,500 3,769 Net interest 1,970 3,321 2,032 2, ,328 9,491 Gain/-loss, interest bearing assets, net 2,347 2,179 2,764 1, ,172-5,722 Other investments 4,358 7,022 2,122 4, ,690 7,685 Gain/-loss, derivatives, net -2,445-1,665-1,251-1, ,873-4,525 Net foreign-exchange gain/-loss 6,803 8,687 3,373 5, ,563 12,210 Costs of commissions Total 27,152 30,752 28,168 30,737 1, ,633 66,531 * The adjustments column is included to adjust for different rounding off effects. Source: Annual reports of the First, Second, Third, Fourth, and Sixth National Pension Funds, 2015 and ORANGE REPORT 2015 SWEDISH PENSIONS AGENCY