Indexation of ITP 2 book method pension reserve schemes
The benefits under ITP 2 book method pension reserve schemes will be indexed by 6.48 per cent as of 1 January 2024.
The indexation corresponds to the increase in the consumer price index (CPI) from September 2022 to September 2023. The decision to index ITP 2 book method pension reserve schemes was taken by the board of PRI Non-Profit Association and corresponds, according to standard practice, to Alecta's decision regarding indexation.
The indexation means that pensions that are being disbursed will be increased by 6.48 per cent. The value of accrued pensions that have not yet begun to be disbursed (the paid-up value) is increased by the same amount.
Under Swedish accounting rules, pension indexation has an impact on operating profit. The increase in liabilities does not have an effect on cash flow per se; instead, it affects only the balance sheet and income statement. However, the cash flow is affected because the actual pension payments being disbursed become higher. The higher pension disbursements also affect special payroll tax and tax on returns from pension funds. The greatest impact is on the special payroll tax, currently 24.26 per cent, which is added to the inflation-driven increase in the pension liability.
The pension liability also increases in companies that report in accordance with IAS 19, but the operating result is not affected in that case because the effect is instead included in other comprehensive income (OCI).
Our online service provides an updated forecast that takes the indexation into consideration.
After 25 January 2024, you can also run an analysis to see how much your pension liability is increasing due to inflation. You can do the analysis when logged in to our online service for companies under the heading Pension Administration, ITP 2 and then select Analysis. The entries for the inflation indexation are called Indexation of accrued pension rights (active, disability, paid-up) and Indexation of pension supplements (retirement pensioners).
At the end of each year, Alecta takes a decision regarding indexation of accrued pension for its insureds. Ordinarily, PRI Non-Profit Association decides that the indexation will be the same as that for insureds whose ITP 2 retirement pensions are secured through PRI. The indexation is carried out in January of the following year, which means that the pension liability as of 31 December 2023 is not affected by this year's decision.
Each year, Alecta takes a decision regarding indexation of ITP 2 which, to state it simply, means that pensions are increased to compensate for inflation. The indexation for the current year is 6.48 per cent, which corresponds to the increase in the consumer price index from September 2022 to September 2023.
If you would like to see how much your pension liability is increasing due to inflation, you can go online and carry out an analysis. You can find the analysis when logged in to our online service for companies under the heading Pension Administration, ITP 2 and Analysis. The entries for the inflation indexation are called Indexation of accrued pension rights (active, disability, and paid-up) and Indexation of pension supplements (retirement pensioners).
The increase in the consumer price index from September of the previous year to September of the current year is ordinarily used. Alecta has a consolidation policy which governs whether the surplus is sufficient to carry out the indexation.
Historical inflation indexation
Year
Inflation indexation
January 2018
2.12 percent
January 2019
2.32 percent
January 2020
1.45 percent
January 2021
0.39 percent
January 2022
2.51 percent
January 2023
10.84 percent
January 2024
6.84 percent
As a customer, you can use the online service to forecast how your pension liabilities are expected to develop over the coming years. You can make your own assumptions about inflation. You can also change your assumptions about future salary increases, which also affects the liabilities. The liability as of 31 December 2023 is not affected by the status of inflation because indexation is carried out in January 2024.
The IAS 19 valuation includes an expected inflation rate, and a financial effect arises when the expected inflation rate is updated. Like the Swedish liability, IAS 19 is affected by fixed indexations but this has less impact because IAS 19 already takes expected indexation into consideration.
In addition, the IAS 19 liability is affected by changes in expected future indexation (not only next year, but throughout life). Changes in inflation often have a large impact because when the inflation assumption is updated, many years of indexation are adjusted.
In January, the buy-out cost increases due to the indexation of pensions.
The buy-out cost is also affected by Alecta's parameters, including the discount rate which is used. Alecta decides on these parameters and PRI has no influence as to whether or when changes are made. PRI’s insurance liability is based on the buy-out cost.