In the general pension system, there is a division between income pension (inkomstpension) and premium pension (premiepension). Each year, 2.5% of your income is set aside for premium pension. You decide how this money is invested. If you don't make a choice, the money goes into AP7 Såfa, the state's management alternative.
Complicated Calculation of Premium Pension Amount
To calculate the premium pension, the account balance is divided by a divisor based on expected life expectancy, a fixed interest rate, and management costs. The monthly amount is obtained by dividing the annual amount by twelve. The premium pension is recalculated annually, and the Pensions Agency uses SCB forecasts for future life expectancies.
Switching Funds - Making active decisision
Many people don't think about the fact that it's easy to switch the funds that go into premium pension and leave the money in the state's management alternative. You can easily switch funds by logging in to the Pensions Agency's website, identifying yourself with e-identification : Premiepensionsmyndigheten
What Funds Should You Choose?
There are many funds to choose from. It's like private savings, where you can decide on the risk level yourself. If you choose riskier funds, you may get higher returns, but there's also a risk that the funds will lose value. In the list of funds, you can see the historical value development, risk level, and sustainability per fund. An important detail is the fee that the fund charges, as high fees can take a large portion of the returns, especially if the fund performs poorly.
It's worth reading up on the funds and making active choices, as it can make a big difference in value development compared to AP7 Såfa. In the list, the value development of AP7 Såfa is not included, but looking at the top 20 funds, there's almost a 10 percentage point difference in value development over the past 5 years between the 1st and 20th places. At the top of the performance list over the past 5 years is Swedbank Robur Technology A with a 25.3% positive return, and at the bottom is Fidelity - China Consumer Fund A with a -8% return.
State's managed alternative AP7 Såfa
AP7 Såfa is suitable for savers who do not want to make their own investment decisions about their premium pension. It is managed by the Seventh AP Fund (Sjunde AP-fonden) and consists of a stock fund and a bond fund. With AP7, your fund portfolio is age-adjusted, and as you get older and closer to retirement, the fund is rebalanced to lower risk by allocating more to the bond fund.
Advantages of AP7 Såfa
- Security
- Global exposure
- Low fees
- Rebalancing between bond and stock funds as you get older
Disadvantages of AP7 Såfa
- Difficult to evaluate performance compared to other alternatives
- There are clearly better-performing funds (but also worse ones)
- You cannot tailor your savings to your preferences
Regardless of what you do, whether you stay with AP7 Såfa or actively manage your pension money, it's still important to take an active decision - it's your future economy that's at stake.
Sources: Premiepensionsmyndigheten, Lannebo
