The AP Funds contribute to a strong Swedish income pension system through managing the public pension buffer capital. Withdrawals are made from the buffer capital to cover any deficits in pension payments. Deficits may arise, for example, if demographic generational differences arise, or if there is weak economic growth. The pension system is designed to handle such situations; it is why the buffer capital system exists. Through long-term asset management, the AP Funds are charged with ensuring positive growth in value of the buffer capital. This helps to ensure a stable pension system and secure pension payments over time for current and future generations.
Mandate from Riksdagen (the Swedish Parliament)
The AP Funds’ mandate from Riksdagen is to generate high returns at low risk for current and future pensioners and at the same time help ensure the stability of the pension system. On 1 January 2019, the rules in the Public Pension Funds (AP Funds) Act were amended. A new objective – that the AP Funds must contribute to sustainable development by managing their assets in an exemplary way – was introduced. This should be achieved through responsible investment and responsible stewardship, without the AP Funds compromising the objective of attaining a high return in the long run.
The pension system’s buffer capital has been managed by the AP Funds over time. The capital has shown good value growth and currently account for a significant share
of the pension system’s assets. Four AP Funds with the same mandate – to manage their share of the buffer capital – serve among other to spread the risks in the pension system and incentivises the AP Funds to positive competition and development, which has led to the AP Funds’ asset management and stewardship being viewed as leading the way internationally. The management of the AP Funds is assessed annually by external auditors and is also subject to a government evaluation. An audit report is published annually and presented to Riksdagen.
Pensioners
The income pension scheme is a redistribution system where the contributions from those currently in employment are used to pay pensions to current pensioners. Those who work and pay taxes make an automatic pension contribution of 18.5 percent, of which 16 percent goes to the income pension system and 2.5 percent to the premium pension.
The pension system
Today’s pension system has worked as intended since its launch in 2001. Deficits occur in times of high numbers of retirements. Low unemployment, a high birth rate, labour migration and Sweden’s socio-economic development are important factors in terms of whether pensions are to show good growth over time. Read more about the pension system on the Pension Authority’s website www.pensionsmyndigheten.se.