Increased pension costs continue to worry the local government sector in Sweden, KPA Pension has stated, with costs continuing to rise amid high inflation and market uncertainty.

KPA Pension noted that, as inflation skyrocketed, the local government pension sector’s pension costs increased by more than 50 per cent last year.

This is due to the fact that pension liabilities and historical wages are indexed with the price base amount (PBB).

KPA said that these calculations were the “biggest cost culprit”.

It added that, if inflation fell back to the Riksbank’s target of 2 per cent, the pension debt would remain at higher levels, but future calculations would be “significantly smaller”.

“If we bring inflation down, pension costs will decrease towards a more normal level,” commented KPA Pension head of pension finance unit, Sven Lannhard.

“It is not expected to happen in 2024, as the PBB for that year is set in June 2023.

“But before 2025, SKR and other assessors expect inflation and PBB to be down to the target level.”

This means that the total pension costs will continue to increase in 2024 by an estimated 10 per cent for municipalities and 8 per cent for regions.

This will then fall by an estimated 25 per cent for municipalities and 35 per cent for regions in 2025, according to KPA Pension’s forecast.

KPA Pension added that there is additional uncertainty over how many people choose a defined benefit pension or the local government pension sector’s new defined contribution arrangement AKAP-KR.

If more people choose to remain in defined benefit pensions, the total costs are likely to increase in the short term.

Lannhard added that KPA Pension will have the results of this in August.

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