Vattenfall’s pension going to the balance sheet

This is new. Vattenfall has decided to abolish its pension fund and move all assets and liabilities onto its own balance sheet. From the FT:

Vattenfall, the Swedish energy group, has taken the highly unusual step of winding up its SKr7bn ($1bn) pension foundation and transferring the scheme assets and liabilities on to its own balance sheet.

The move will see Vattenfall sell its portfolio of bonds and equities and instead invest the money in its own business.

Johan Gyllenhoff, its head of treasury, said the decision was driven by an impending “tsunami wave of regulation” of pension funds, such as proposals by the European Insurance and Occupational Pensions Authority to create a Solvency II-like regime for pensions, as well as a view that Vattenfall could generate better returns for the money in its own operations.

This is, to my knowledge at least, the opposite way of what has happened lately. Vattenfall says it will use it as long-term funding, and that it will invest in its business — something where they have expertise. That is fair, but it creates huge risks, as this is people’s pensions we are talking about. Not all firms are well-run, and while I have no problems with Vattenfall, if this was to be a *thing*, it could potentially concentrate risk to a dangerous extend.

One more thing: In this day and age, companies’ life spans have been reduced drastically. The old, reputable companies are on the downtrend. I *think* that new companies will be strong for a shorter time (think Facebook, Groupon, etc.) This is especially important since pensions are long-term income security. If firms will have a higher turnover, and one is expected to work at multiple firms, then having ones pension on the balance sheet might not be the best idea. Complexity does at least seem to grow, if that is the case.

  • Con Keating

    The pension scheme was and is insured against sponsor insolvency. This is not complexity but simplicity.

    • Anders Palm

      Correct, Con, but yet, Vattenfall´s acting is illegal according to Swedish civil-law. The pension-obligations of Vattenfall were guaranteed by PRI Pensionsgaranti, mutual (formerly FPG) already before the pension-fund was established in 1999 and ever since. By the pension-fund a new warrant was added to secure the pension-obligations and after that has been done the fund can´t be dissolved and regained by Vattenfall unless all the obligations first have been covered by pension-insurances bought by Alecta life insurance-company.
      Anders Palm, pension-consultant and author of the book “Pensionsstiftelser” (i.e. Pension-funds)

      • Lars Andersson

        The acting of Vattenfall is not illegal according to Swedish law. The obligation to pay employee pensions in case of an insolvency situation is transferred to the insurance company PRI Pensionsgaranti. This is the basic way of safeguarding pensions and has been since the 1960’s in the Swedish book reserve system. The system has worked fine for more than 50 years and is regarded as the strongest and most sustainable guarantee system by the OECD.