Pensions and long-term savings
What affects your pension?
Long-term savings and risk
Investing in the stock market offers both opportunity and risk. Historically, the performance of all markets has been alternately positive and negative in irregular cycles. In a longer perspective, the trend has generally been positive. History shapes our expectations for the future.
No crystal balls
The financial market is unpredictable but fair, as everyone has potential access to the same information. Trying to win by predicting developments that differ from the overall market expectation has proved difficult. This is called active management. The opposite is passive management or index fund management, where the aim is to not deviate from the overall market performance.
Index and time
The index is the average curve of a market’s overall performance. Active managers outperform the index about as often as they underperform it, so on average, active managers underperform the index because active management involves higher costs and higher management fees.
The likelihood of an active investment deviating significantly from the index decreases with time. And research shows that few people who invest in equities outperform the index over a longer period of time.
Risk
For many people, risk is a negative concept, but in an investment context it also means the possibility of reaching higher. The chance of high returns increases with investments in, for example, individual stocks or pure equity funds – but the risk of losses also increases. Conversely, both risk and potential return decrease with low-risk investments such as savings accounts and fixed income funds.
What do you want?
Attitudes to risk are highly individual and should be reflected in your pension savings. The law requires financial advice to be based on each individual’s personal relationship to risk (risk appetite). In addition, your expertise in financial instruments must be reflected in advice of the right complexity. Therefore, when you use Lifeplan for the first time, you will be asked questions about risk and your experience in securities trading.
An important aspect of investment choice is diversification – not putting all your eggs in one basket. Whether you choose high or low risk, it is important that you spread your investments. Lifeplan’s advice allocates capital in a market-neutral way. This means that your holdings should reflect the world market, including geography and industry.
Things to consider regarding fees
When you save in funds, you pay an annual fee for managing each fund. These fees vary widely – some cost a fraction of a percent of your capital each year, while others can cost up to two percent or more. Managers of more expensive funds like to point to expected returns to justify their fees but historically there are many affordable funds that have performed better.
Fees play a crucial role over time as the interest-on-interest effect can make high fees costly in the long run. For example, an annual fee of 1.5% can reduce your capital by over a quarter after 20 years. Another example is the fund-of-funds structure, where fees are charged at several levels. This often results in a high overall cost for you as a saver.
When advising you, Lifeplan analyzes the full range of funds available within each component of your pension. The funds that are the best and most cost-effective, taking into account investment focus and historical returns, are selected. The analysis also includes an assessment of how much of the return can be attributed to market performance and how much to manager performance. This is then weighed against the funds’ charges to ensure you get the best possible value.
Independent advisors - your guarantee that the advice is based on what is best for you
The regulations regarding financial advice define what an adviser must fulfil to be considered independent. Independent advice must not include advice on proprietary products or limited ‘fund packs’ that do not look at the full range available. Nor can independent advisers accept kickbacks or commissions on their clients’ investments.
This makes Lifeplan one of the few players in the market to provide independent investment advice.
Lifeplan does not offer its own financial products. We do not receive any commissions or kick-backs from the pension companies and thus have no incentive to recommend funds with high fees.
The algorithm on which Lifeplan is based looks at your circumstances to provide an tailored risk level. For example, we lower the risk level as you approach your retirement age. The service overviews and analyses your entire available range of funds and creates objective advice aimed solely at benefiting you.
Contributions and pension provisions
Your total pension is made up of several parts and is influenced by your salary, working hours and any supplementary contributions such as occupational pension. If you have private pension savings, these will also contribute to your future pension.
Public pension
The national pension is calculated on your salary up to a ceiling of SEK 51 245/month (based on the 2024 income base amount).
The public pension consists of two parts:
Income pension – this part is income-indexed to follow the salary developments in Sweden and you cannot influence its management
Premium pension – you are responsible for investing this part yourself. If you do not make an active choice, the money is automatically invested in the default option, AP7 Såfa.
Occupational pension
The occupational pension is another important part of your overall pension. If you have an occupational pension from your employer, the contributions are typically based on your entire salary, including the parts that exceed the cap for contributions to the public pension. You can influence the investment of your occupational pension by making active choices within the options offered by your employer’s occupational pension scheme.
The performance of your assets
Your final pension depends largely on how your pension capital develops over the years. The responsibility for managing your money rests largely with you.
For the parts of your pension that you manage yourself, you can choose investments schemes with different levels of risk and fees. By making the right investments, you can significantly increase the value of your pension capital. The size of your future pension will therefore depend on how you invest your pension capital today.
