is allowed a 70/30 distribution. The share of equities represents, thus, what is allowable while complying with the rules regarding technical reserves. The PPM is not yet in the position where it has “free assets”, that is, reserves much exceeding the amount needed to cover guaranteed commitments, which it can invest more freely.<sup>28</sup> At year’s end 2007, following the switch from a guarantee rate of return of 2.75 percent on balances to a guarantee covering only the nominal value of balances, the solvency ratio increased from a little over unity - 1.04 – to about 1.17. Progressively during 2007 the PPM enlisted the services of four private firms to manage an equity portfolio. Its interest bearing portfolio is still being managed by a publicly owned investment agency that invests other government funds.

Benefits are calculated using _unisex_ life expectancy tables, which is in line with an EU court (Barber) decision regarding benefit calculations in _public_ pension schemes. The life expectancy projections used by the PPM are taken from Statistics Sweden’s projections. Statistics Sweden provides two scenarios: a baseline and a low mortality rate scenario. In calculating the traditional fixed-rate annuity, the model with a guarantee and a bonus, the PPM uses Statistics Sweden’s low mortality scenario, adjusted even further by assuming mortality will be 10 percent lower. On the other hand, the baseline scenario is used in calculating the variable rate annuity, where the participant retains his or her market funds. The difference between the low mortality scenario and the baseline scenario is substantial, about four years to the year 2050 (Table17). Hence, the PPM fixed rate annuity is based on a very conservative assumption.

**Table 17.  The PPM Life Expectancy Assumption.  Illustrated with LE from birth.**

||**2004**|**2050**|
|---|---|---|
|**_Baseline scenario_**|||
|Men|77.9|83.6|
|Women|82.3|86.2|
|**_Low mortality scenario_**|||
|Men|78.0|87.5|
|Women|82.4|89.9|

Source. Statistics Sweden Whereas in the fixed-rate case the PPM bears the longevity risk for the guaranteed benefits, the PPM bears no longevity risk for the variable rate. From the point of view of the insured individual who has chosen the variable rate option (which around 90 percent of retired participants had in 2007) this allows use of the less conservative mortality assumption and results in less money in the final years of the payout period. For present pensioners, benefits are still so small that this makes little difference in practice. It will become a matter for potential concern when the PPM system has matured and individual balances at retirement are large enough to worry about.

Presently, the PPM expects to retain the mortality schedule, determined at age 65, for the remainder of the participant’s life. There is nothing that prohibits changing tables in the future, if longevity changes considerably compared with the table values. Within the traditional insurance framework, as has already been discussed at length, the insurer, the PPM in this case, has the option of covering negative longevity outcomes for the insurer by altering

> 28 Recall that, as a group, private insurance companies held almost 50 percent of their assets in equities in 2005.

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