Policymakers should look for ways to address the country’s growing pension debt, Swedish pension provider Skandia has said, warning that without proper financial planning soon it could lead to higher taxes or difficult investment choices.

Skandia's research showed that pension liabilities in Sweden's regions and municipalities has risen "significantly", reaching just over SEK 600bn by the end of the 2024 financial year, a more than SEK 60bn increase compared to the previous year.

The provider said a recent period of high inflation in Sweden has “significantly” increased the municipalities and regions' pension liabilities, which rose by more than SEK 100bn over the past two years.

And Skandia business manager public business, Greger Gustafson, warned that this is a large sum of debt that could otherwise be passed on to future generations.

He added that although some municipalities and regions have a plan for how these debts are to be handled, "unfortunately", too few have a ready-made solution and that without a “clear financial plan, the growing pension liabilities risk becoming a cuckoo that crowds out other welfare investments”.

“That's why it's so important to make visible what reality looks like," Gustafson said.

At the same time as pension liabilities are increasing, Skandia pointed out that the population is decreasing in half of Sweden's municipalities, meaning that fewer working-age residents have to pay off a debt that only continues to grow.

The research revealed that over the past 40 years, nearly half of all municipalities have lost residents, and in seven out of 10 municipalities, the population has grown more slowly than the national average of 27 per cent.

According to Statistics Sweden’s 2024 forecast, the country’s population will grow by just over 4 per cent by 2040, but half of Sweden’s municipalities are still expected to shrink.

Gustafson suggested that there are several ways to tackle population decline and growing debt, such as municipalities setting aside money for a pension fund or using pension solutions available on the market.

“Without a clear plan for financing the pension debt, municipalities may be forced to raise taxes or make painful investment priorities," Gustafson warned.

Looking into the figures in more detail, the report showed that almost 50 per cent, or nearly SEK 300bn, of the municipalities' and regions' pension liabilities are reported off the balance sheets, a large figure when compared to Sweden's national debt, which is just over SEK 1,000bn.

Skandia indicated that the main reason for this is that regions have more employees, often with higher salaries, which increases pension costs that then show up as larger pension liabilities in their balance sheets.

Another reason for the difference is that almost half of the municipalities have chosen to insure their defined benefit (DB) old-age pensions, which avoids adding new pension liabilities to their balance sheets.

The report also pointed out that municipalities are increasingly choosing to insure and gradually pay off older pension liabilities that are listed as “contingent liabilities”.

The pension liability per resident has risen by almost SEK 5,800 and now totals more than SEK 57,000.

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