Sweden’s Alecta has reduced the equity exposure in its defined benefit (DB) portfolio to 30 per cent, down from 35 per cent.

Its board of directors have also lowered the threshold funding ratio for which surpluses are paid to employers to 170 per cent, down from 175 per cent, in the ITP 2 scheme. On 30 September 2024, the collective funding ratio of the DB scheme was 163 per cent.

The board undertook a “comprehensive analysis” of the scheme to reach their decision, in which they simulated the asset and liability side of the DB scheme until 2060.

The analysis simulates a gradual phasing out of the proportion of risk-bearing assets as the portfolio ages and a gradual reduction in the funding range.

“The change in consolidation policy is expected to lead to earlier and more stable payments of surpluses to companies. Consolidation is currently below 170 per cent. There is no distributable surplus here and now, nor is it certain that there will be, but the likelihood that there will be increases with these decisions," Alecta product manager, Fredrik Palm, said.

In the most challenging scenarios, the possibility of long-term value hedging of private customers' pensions in line with inflation is also improved by a reduced proportion of risk-bearing assets in the defined benefit pension.

“We envisage a development where the defined benefit pension will continue with a reduced proportion of risk-bearing assets and a reduced upper limit in the funding policy over the next 25 years. Changes in the policy are planned to take place every three to five years," Palm added.

The change will apply from 1 January 2025 and Alecta's defined contribution insurance, Alecta Optimal Pension, is not affected by these decisions.

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