Swedish pension fund warns of payment cuts

Swedish pensions firm AMF Pension has confirmed there is a significant risk it will have to cut its dividend rate, according to a statement by AMF's CEO Ingrid Bonde to Dagens Nyheter.

The cut would mean lower pensions payments to existing pensioners. Guaranteed rate products are not affected.

Falls in Swedish and global stock markets in recent months are the reasons given for the development; a definite decision is expected by AMF at the end of January.

Bonde predicts that more pensions firms will be forced to do the same as asset/liabilities ratios continue to fall.

“We have been affected like others by the financial crisis. Our policy has been to ensure savers benefit from the boom, but we also slow down faster in a downturn,” Bonde said to Dagens Nyheter.

Rival firm Folksam has however confirmed that it however has no plans to cut dividend rates, which are currently at one percent.

“It would require a major change in that case. We have continually cut our share of direct equities ownership and increased instead investments in interest-bearing funds,” said Folksam CEO Anders Sundström.

KPA Pension is the firm that has performed the best amidst the autumn’s financial turbulence. Folksam holds a 60 percent stake in KPA Pension which has reported a total yield for 2008 of 7 percent. For KPA Pension’s savers this means that they will receive a 6.3 percent rate of return on their pensions investments.

Folksam Liv savers will gain returns of 0.2 percent on their pensions savings for 2008. The company’s asset/liability ratio currently amounts to 105 percent.

“All the companies within the Folksam group have returned positive results,” according to Anders Sundström.

This is an indication of the firm’s financial strength, he argued.

“According to my estimations the sector as a whole will report a return of minus seven-eight percent for 2008.”