RSUs at Klarna might sound exciting—ownership in a fast-growing scale-up, a chance to make bank. But the reality for employees? You could lose hundreds of thousands of SEK in lost salary, missed pension contributions, and taxes on illiquid stock. Meanwhile, Klarna saves tens, or even hundreds, of millions every year in reduced payroll costs.

Let’s dig in…

Why RSUs Can Hurt Employees

TLDR: RSUs are taxed twice in Sweden. At vesting, you pay income tax on stock you can’t sell, and when you eventually sell, you pay capital gains tax on any increase. If the company is private (like Klarna in 2020), you can’t just liquidate, so you’re paying real taxes on “paper money.”

All financial instruments—RSUs, stock options, warrants, QESO—are a gamble. Sometimes you win big. Sometimes you pay more in taxes than the stock is worth. RSUs in privately held companies tend to be the latter.

• Double-trigger taxation: Income tax at vesting + capital gains tax at sale.

• Illiquidity: You can’t sell until a company IPO or a selling window.

• Reduced pensionable salary: Any part of your pay converted to RSUs reduces your occupational pension (tjänstepension, TJP) contributions.

Unfamiliar with RSUs? Check out my explanatory blog post before reading any further.

How TJP Works in Sweden

TLDR: Salary up to 7.5 × IBB generates 4.5% deposits to your pension. Anything above that generates 30%. If RSUs replace salary, your pension deposits shrink immediately.

Reducing pensionable salary in favor of receiving RSUs is generally a risky move for employees. To understand why, it’s important to first understand how occupational pensions (🇸🇪 tjänstepension, or TJP) work in Sweden. These pensions, governed by collective bargaining agreements, provide a guaranteed and long-term retirement benefit. Sacrificing pensionable salary can significantly reduce future retirement income, while RSUs carry market risk and no guaranteed return, making this trade-off potentially costly in the long run.

Here’s the exact formula for those who want the details—don’t worry, we’ll break it down in plain language right after.

where

• C = Total pension contribution (🇸🇪 pensionsavsättning)

• S = Annual pensionable1 salary (🇸🇪 pensionsgrundande årslön)

• B = Income base amount, IBB (🇸🇪 inkomstbasbelopp)

Or in layman’s terms: any salary up until 7.5x IBB generates a 4.5% deposit to your TJP by your employer (in addition to your salary). And anything above that generates a 30% deposit on the excess amount.

However, do note the important word pensionable. Now you might think that because you’re paying income tax on vested RSUs that would count towards your pensionable income? If so, you’d be wrong. Meaning any reduction in pensionable salary in favour of RSUs would also mean a reduction in TJP.

Jane Doe gets her raise in RSUs

TLDR: Jane was promised a 5% raise in RSUs (2,500 SEK/month). After 4 years, she’s down ~175,000 SEK in lost salary, pension, and taxes. Why? Cliff vesting, FMV fluctuations, and double taxation.

Ok, now that we’ve further familiarised ourselves with RSU programs and how TJP deposits work, let’s look at some examples. We’ll do all the math as if it’s 2020 since that was the start of the Klarna RSU program.

Meet Jane Doe. She works as a software developer and her monthly salary is 50.000 SEK. That means her employer sets aside 4.354 SEK monthly to her TJP2

Mind you! This is only guaranteed if her employer has a collective bargaining agreement (🇸🇪 kollektivavtal). Without it there’s nothing forcing them to make the deposits (which usually means they don’t). So read those employment contracts thoroughly folx!

Now, let’s look at how Jane Doe’s financial situation changes if she was given her yearly raise solely in RSUs. Let’s say her employer (to sweeten the deal) offered Jane Doe the equivalent of a 5% raise in RSUs, that’s 2.500 SEK monthly.

Since Jane’s pensionable salary won’t increase3, she’s now losing out on 9.000 SEK4 in TJP deposits yearly. That’s a loss in potential pension deposits of 17.2%, caused by a mere 5% raise swapped to RSUs. Not to mention the 30.000 SEK5 in gross salary she’s missing out on.

Jane gets her first RSU grant

So Jane Doe’s initial RSU grant will be worth 30.000 SEK, which at the time of the grant corresponds to 682 RSUs at a FMV of 44 SEK6. After 1 year 25% of this will vest (cliff vest) and after that the remainder will vest quarterly. In other words, it’ll take her 4 years to “earn” back what would’ve been hers in salary year 1.

Year 1 – Cliff Vesting Hits

TLDR: Jane’s 30,000 SEK RSU grant grows to 54,000 SEK after 1 year (FMV 44 → 80 SEK). She pays 7,493 SEK in taxes on illiquid stock. Cliff vesting and private company restrictions mean she can’t cash out immediately.

So the first cliff vest rolls around, and now the FMV has risen from 44 SEK to 80 SEK (an 81% increase), so the 30,000 SEK grant is now worth 54,000 SEK. And the vested value is 13.500 SEK7. For Jane Doe, that means paying an extra 7.493 SEK8 in income tax on her illiquid assets (vested RSUs).

At this point Jane Doe has missed out on 46.493 SEK9 (gross) in lowered pension deposits, reduced salary and RSU tax combined. Meaning if she were able to sell the vested RSUs on the spot (which she couldn’t), she still would’ve lost 36.143 SEK on the deal10, despite the RSUs actually having almost doubled in value.

Year 2 - FMV explosion

TLDR: FMV skyrockets to 315 SEK. 25% vesting means Jane pays 29,895 SEK in taxes that year on illiquid stock. Total cumulative loss now ~115.479 SEK.

Another year passes, and the FMV has surged to 315 SEK11 — a 294% increase, nearly quadrupling in value. Jane Doe’s vested RSUs are now worth 53.865 SEK12 , but she owes 29,895 SEK in income tax on these illiquid shares13.

After two years in the program, her cumulative losses total 115.479 SEK14, and even at this peak FMV, her vested RSUs fall short by 36.053 SEK15.

Now, imagine this effect compounding over the following years. Let’s break down the numbers.

Year 3 & 4 - FMV collapse

TLDR: FMV plummets to 44 SEK. Jane’s RSUs are now worth 30,096 SEK. Total 4-year loss in salary, pension, and taxes: ~201,715 SEK. Net loss after selling RSUs: ~178,819 SEK.

The last 2 years of Jane Doe’s RSUs program the FMV plummets to 44 SEK. This means her combined income tax year 3 and 4 amounts to 8.327 SEK16.

So after 4 years Jane Doe has lost 201.715 SEK17 in gross salary, TJP deposits, and RSU income tax combined.

And now with the FMV drop of 85% from the peak, her 682 vested RSUs are worth a measly 30.096 SEK18. Meaning she’s lost 171.619 SEK19 over the span of the RSU program.

And that’s not even counting the potential increase in value those TJP could’ve had over the years. If we take into account a standard YoY increase of 6% we’re looking at 205.086 SEK20 in total losses.

So after selling all her vested stock she ends up having lost 174.990 SEK over the course of the 4 year RSU program21.

Note: the RSU program at Klarna was “rolling”, meaning employees received grants yearly. The calculations above is for 1 grant in 2020 with a 4 year vesting period. To get the full picture you’d have to do the same calculations above for each grant over the time period 2020 - 2025.

Withhold-to-Cover: Less Pain, Same Risk

TLDR: Withhold-to-cover would have eased the cash pinch, but Jane still loses big.

If Jane Doe had been able to use a “withhold to cover” mechanism, the income tax on her vested RSUs would have been automatically deducted from the grant rather than paid out of pocket. In Year 1, this would have covered 7.588 SEK on her 13.680 SEK vested RSUs. In Year 2, 29.891 SEK would have been withheld, and in Years 3 and 4, another 8.327 SEK. That means her total cumulative loss drops from 201.715 SEK to roughly 155.909 SEK. Net loss after selling the RSUs falls from 171.619 SEK to around 126.000 SEK.

The takeaway? “Withhold to cover” would have taken the sting out of taxes on illiquid stock, but the real hit—lost pension contributions (9,000 SEK/year) and foregone salary (30,000 SEK/year)—remains. RSUs still end up being a risky trade-off compared with a straight salary increase.

Company Perspective: Klarna Saves Millions

TLDR: By forcing RSUs instead of salary raises, Klarna saved ~188 million SEK over 4 years, while employees like Jane lost ~201,715 SEK.

Meanwhile, the employer has reduced their payroll cost by millions yearly. Let’s run the math for the Klarna example.

In 2020 Klarna had roughly 7000 employees. Not all were eligible for the RSU programs. So let’s say about 60% were. Then let’s further assume the average RSU to cash salary split was 5% to 95%, and that the average salary at the time was 45.000 SEK. That landed Klarna an annual saving of 13 million SEK just in payroll22.

But it doesn’t stop there. Now let’s add the reduction in TJP deposits too. Avoiding to increase employees’ pensionable salary from 45.000 to 47.250 SEK meant a yearly cost reduction for Klarna by 8.100 SEK per employee23 in 2020. In other words, Klarna saved 34 millions yearly on reduced pension deposits24.

This accumulates to a total of 188 million SEK25 in savings over the same period an average employee lost approx 201.715 SEK26.

Making it make sense

At the end of the day, RSUs in a private company like Klarna weren’t about “democratizing ownership.” They were about transferring risk from the company to its employees, while simultaneously cutting payroll and pension costs on the backs of workers.

For employees, the outcome was devastating: tens or even hundreds of thousands of SEK lost in salary, pension contributions, and taxes — all for illiquid stock that, in many cases, couldn’t even be sold when it mattered.

For Klarna, the outcome was brilliant: hundreds of millions saved in payroll and pension obligations.

So when we ask who really benefited from Klarna’s RSU program, the math leaves no room for doubt. It wasn’t the employees.

Let's kick this Klarna IPO series off with the fundamentals. Otherwise little to nothing of the number crunching I'm about to do, will make sense for a lot of people. So bare with me.

First, Restricted Stock Units (RSUs) are not stock options, and they're definitely not Qualified Employee Stock Options (QESO). So any number crunching or conclusions drawn from the Klarna RSU program does not apply to stock options or QESO programs.

So, what are RSUs? They are a promise from your employer to, at some point in the future, grant you a certain number of shares.

The key feature of RSUs is the vesting period. At Klarna it was 4 years with a 1 year cliff vest. In other words after the first year 25% of the totalt grant (the amount of RSUs "promised to you") vested. After that 1/4 of the yearly 25% vested every quarter. So if you quit before the 1 year cliff vest you were robbed of it all.

Now, in Sweden RSUs that vest (effectively becoming yours) are taxable as employment income. Meaning, in the Klarna case, that you were taxed according to the Fair Market Value (FMV) of Klarna stock at the time. This is where most employees got swindled since being taxed on RSUs when the FMV of Klarna was $45bn meant having to give up pretty much your whole paycheck 4 times a year to cover the tax.

There is also "withhold to cover" (which you actually couldn't do initially). It means the employer gives you less RSUs in order to cover the tax. This can be both good and bad obv depending on where you think the FMV is heading. Up or down?

And then we've got the 2nd taxable event. Which is now, at the Klarna IPO, when there's an opportunity to sell the actual $KLAR shares (once the Larkan shares have converted) and those are then taxed as capital gains (ie ~30% on the revenue increase - if there was one).

For a lot of Klarna RSU holders they'll actually be selling at a huge loss since their RSUs vested when the FMV was $45bn and Klarna IPO:d at $14bn. So they won't actually have to pay any tax when selling those shares. Which is a small comfort considering the humongous tax bill they were forced to cover back when vesting.

So there you have it. Part 1 of crunching the numbers and making sense of it all 🙏

I have _so much_ to say about the Klarna IPO, and in particular the former RSU program.

For years, Klarna required employees to take a significant portion of their pay in RSUs, that vested over four years. It was sold as "democratizing" ownership, but it was all smoke and mirrors.

​In fact, it was a way for Klarna to slash payroll costs, and it left employees short-changed on their rightful salaries and 401K contributions (🇸🇪 tjänstepension). They were, in effect, swindled.

​Now, with the IPO finally happening, more sting is in the details. Those RSUs that were pitched as a huge benefit? They convert to actual $KLAR shares at a 4:1 ratio.

Seriously considering putting together a full breakdown with all the numbers, but the early conclusion is brutal 👇

A lot of people, that were around from the start of the RSU program, are going to end up having paid more in taxes, than their shares are even worth...

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If you've read my earlier posts about union bargained pensions and the importance of fees, you know by now that the pension scheme you get access to via a collective bargaining agreement (🇸🇪 kollektivavtal) is brilliant (low fees + great historical performance). But let's dig in a little deeper.

Since financial literacy is something dear to my heart, pensions and the Swedish pension system have always been something I find it very important to understand. It’s also one of the most important aspects of Collective Bargaining Agreements (CBA) or 🇸🇪 kollektivavtal, because they regulate how much occupational pension your employer deposits on your behalf.

As regulated by CBAs the occupational pension deposits look like this:

• 4.5% to 6% of your salary up to 46 438 kr (2023)

• 30% to 31.5% on any excess amount, above 46 438 kr (2023)

For a white collar worker in the private sector earning 50 000 kr/month, that’s a minimum of 3 159 kr/month in pension deposits (37 896 kr yearly).

• 4.5% * 46 438 = 2 090 kr

• 30% * (50 000 – 46 438) = 1069 kr

• Total: 3 159 kr

Now, let’s do a comparison between a private pension solution (Avanza 75 default fund) and the ITP1 scheme (CBA). And let’s pretend the same % of money is deposited by Company X (despite not having a CBA) out of the goodness of their hearts.

Some assumptions about our Jane Doe and the financial markets:

• Starting salary = 50 000 kr

• 2.5% YoY salary increase

• Stays at Company X for 5 years

• Accrues compound interest for another 25 years before retiring

• 6.0% YoY value increase on the invested funds

• Private pension fund capital fee = 0.66% (Avanza 75 default fund), which is not that bad and one of the “better” private solutions you could get, there are far worse ones with fees above 1%

At the end of year 5 the employer will have paid approx 286 481 kr in pension deposits into Avanza, incl 6% YoY value increase and minus 0.66% in annual fees. And after 25 years Jane’s pension fund will be worth 1 041 949 kr, at which point Jane will have paid 187 590 kr in fees (!).

Had this been the CBA solution (ITP1) Jane’s fund would be worth 291 254 kr at year 5, incl 6% YoY value increase and minus 0.09% yearly fund fees (capped at 600 kr) and 0.8521% yearly deposit fees (capped at 450 kr). And after 25 years it would be worth 1 209 929 kr (167 980 kr more than the Avanza option), at which point Jane will have paid approx 20 100 kr in fees, since they cap out at 450 kr and 600 kr yearly respectively. That corresponds to 11% of the Avanza fees.

Now imagine if Jane Doe were to spend 30 of her working years in different companies without CBAs. Actually, don’t imagine it, let me do the math instead: 30 years would result in Jane Doe losing approx 650 000 kr in fees to the Avanza solution.

With an even worse solution (like SEB TryggPlan) with yearly fees of 1,06%, we’re talking 1 100 000 kr lost to fees!

As I've allured to in previous posts, there are better and worse options in Sweden when it comes to investment banks. Most of you probably already have a checking account (🇸🇪 lönekonto) with any of the 4 major banks in Sweden:

• Nordea

• Handelsbanken

• Swedbank

• SEB

And most likely they've tried to convince you to open an investment account with them too? Perhaps even succeeded? Well, don't worry, we're about to fix that. Because there are far better options out there, namely:

• Avanza

• Nordnet

These two "online banks" (no physical offices) beat the 4 major banks of Sweden both in terms of offering and fees. Let's have a look.

Fees

Fees are quintessential when you're looking to invest your money. Since almost all fees are charged as a % of your total holding in a specific fund, it can get really expensive, really fast. That's why keeping fees at a minimum should be at the core of your passive investment strategy. In order to learn more about fees, 🇸🇪 normanbelopp and how to understand compounding interest with regards to fees, please read this post first and then come back here 🙏🏼

You done? You throughly appalled at how much of your money goes into the pockets of fund managers? Me too. Then let's continue by having a look at the fee distribution of the 4 big banks of Sweden.

According to Finansinspektionen the median fees for index funds (not actively managed) and actively managed funds looked like this in Q1 2023:

To clarify, 1.34% is the median fee for an actively managed fund focusing on the Swedish market. Median! That means that there are just as many funds that are even more expensive, as there are cheaper ones. And as you might recall from the post about fees, a fee of 1.15% already robs you of 20%+ of your investment on a 30 year investment timeline. At 1.34% the math will be even worse.

So, what do the fund fees look like at Sweden's biggest banks? Let's have a look at their recommended and "favourite" funds (the ones they're most likely to recommend to you). We'll look at some actively managed funds (global and Sweden focused) as well as some index versions. We'll also have a look at whether the actively managed versions have a track record of outperforming their corresponding index.

Nordea

Nordea offers a chart of popular choices of funds among their customers. We'll look at 2 actively managed funds from the "Monthly Savings Favourites" and 1 actively managed fund from the "Equity Fund Favourites", as well as 2 index funds.

Below I'll insert the performance of the 2 globally focused actively managed funds over the past 5 years, compared to their corresponding index. The Sweden focused Nordea Swedish Stars hasn't been around long enough for a 5 year comparison, hence it's not included. As you can tell by the graphs below (which are from Nordea's own website), none of the actively managed funds appear to consistently (or even occasionally) be outperforming their index on a 5 year timeline.

Nordea Stratega 50

Nordea Stratega 70

Handelsbanken

At Handelsbanken we'll look at 2 actively managed funds and 2 index ones, with the market focus being global and Sweden.

Below I'll insert the performance of the 2 actively managed funds over the past 5 years, compared to their corresponding index. As you can tell by the graphs below (which are from Morningstar), only the Sweden focused actively managed fund appears to occasionally outperform it's index on a 5 year timeline.

Handelsbanken Global Selektiv

Handelsbanken Sverige Selektiv

Swedbank

At Swedbank we'll look at 2 actively managed funds and 2 index ones, with the market focus being global and Sweden.

Below I'll insert the performance of the 2 actively managed funds over the past 5 years, compared to their corresponding index. As you can tell by the graphs below (which are from Morningstar), only the globally focused actively managed fund appears to occasionally outperform it's index on a 5 year timeline.

Swedbank Robur Globalfond Aktiv

Swedbank Robur Sverige

SEB

SEB curates a "main" fund portfolio and also a recommended list, so we'll be looking at a few of those funds. Again with the explicit focus being either Sweden or global and also both index and actively managed.

Below I'll insert the performance of the 2 actively managed funds over the past 5 years, compared to their corresponding index. As you can tell by the graphs below (which are from SEBs website), only the Sweden focused actively managed fund appears to occasionally outperform it's index on a 5 year timeline.

SEB Global Aktiefond

SEB Sweden Equity Fund C

Conclusion

The median fee for actively managed funds in Q1 2023 according to Finansinspektionen was 1.34% (Sweden) and 1.35% (Global). Only 3 (!) funds mentioned in this review have a fee lower than the median (and not by much): SEB Sweden Equity Fund C (1.30%), Swedbank Robur Globalfond Aktiv (1.26%) and Swedbank Robur Sverige (1.25%). That's not a good look in my opinion. And Handelsbanken sure stands out with their positively astronomical fees of 1.85% (!) for Handelsbanken Sverige Selektiv and 1.60% for Handelsbanken Global Selektiv.

The alternative

Now, let's look at what an equivalent index fund would cost you at Avanza or Nordnet. Why only index funds? Because it's been proven again and again that actively managed funds seldom, if ever, outperform their index when you take the astronomical fees into account (which one always should!). So therefor, we'll be looking at which cheap index funds you could be buying instead of giving your money away to fund managers at Nordea, Handelsbanken, Swedbank or SEB.

Avanza

Avanza offers the following 2 global/Sweden focused index funds:

Nordnet

Nordnet offers the following 2 global/Sweden focused index funds:

Conclusion

Avanza and Nordnet offer index funds at extremely competitive prices. There's really no reason, at all, to be investing your hard earned money with the 4 big banks of Sweden, as their fund fees are positively astronomical, even for passive index funds!

Offering

Now, there's one more aspect I said we should look at, and that was the offering. Perhaps the offering is at least the same regardless of which bank you choose? Wrong. The amount of funds you can choose between differs massively from bank to bank. Let's have a look, first at the 4 big banks in Sweden:

• SEB: 465 funds, full list here.

• Swedbank: 300 funds, full list here.

• Nordea: 160 funds, partial list here, full list not available online.

• Handelsbanken: 1085 funds, full list here.

Then let's look at the two competing banks:

• Avanza: 1350 funds

• Nordnet: 1645 funds

Final thoughts

When looking at the fees and the offering, I hope that where to put your hard earned money no longer feels like a hard choice 😉

Ever thought about how much of your investments end up in the pockets of fund managers because of inflated management fees? Didn't think so. It's not a very nice thought experiment to be honest, but a very important one. So today we'll do some math together to help ourselves better understand what impact different fee % have over time on your investments.

Different types of funds

There are a variety different funds available on the market, but we're going to focus on 1 important distinction (which is a major driver behinds fees) and that's whether the fund is actively managed or not. So we're going to look at two kinds of funds:

• Index funds: a type of fund that seeks to track the returns of a market index (S&P 500 for example), in other words it's not actively managed.

• Actively managed funds: a type of fund in which the portfolio managers make investment decisions with the goal to do better than the market (keyword: goal).

As you might've already surmised, index funds are on the cheaper end of the scale, while actively managed funds tend to be more expensive (the fund manager has to be paid somehow). I bolded the word goal in the definition above for a reason. Goal does not mean they always succeed. Quite the opposite actually. Over the years Finansinspektionen (the Financial Supervisory Authority) has carried out several reviews of actively managed funds and the findings are quite dreadful.

In 2016 there was quite the debacle around this with Finansinspektionen scrutinising actively managed funds offered by Sweden's 4 biggest banks: SEB, Swedbank, Nordea and Handelsbanken. According to Finansinspektionen almost no actively managed fund outperformed their index when the fee was included in the calculations (which it obviously always should be!). And since then, not much has happened. Which is why it's up to us (sadly) as customers to educate ourselves so we can make better choices.

Why does the fee matter?

How big of a difference does it really make if I have 0.2% or 1.2% in fees? It sounds so little, no? Yes it does but fees in % are deceiving. Because just like compounding interest (🇸🇪 ränta på ränta) works for you in terms of gains over time, it works against you with fees. That's why keeping fees at a minimum should be at the core of your passive investment strategy.

What is a "low" fee?

But how do you know if a fee is high or low? Well, for that we have 🇸🇪 normanbelopp in Sweden. The "normanbelopp" is named after Peter Norman, the Swedish Minister of Financial Markets 2010-2014, and was introduced by Morningstar.se in 2015 (Morningstar is an independent fund rating institute). The normanbelopp is a really important key performance indicator for funds. And it's defined like this:

The normanbelopp is a key performance indicator (🇸🇪 nyckeltal), which shows how much you would've ended up paying in fees, had you saved 1000 SEK monthly in a given fund over the period of 10 years. When calculating the normanbelopp, standard amounts for yearly value increases are used, namely 6% for equity funds (🇸🇪 aktiefond), 4% for mixed funds (🇸🇪 blandfond) and 2% for interest funds (🇸🇪 räntefond).

Thanks to this key performance indicator, which is now a de facto standard in Sweden, comparing funds and their actual cost over time is much easier. Usually you can find it listed on each funds information page right next to the other key performance indicators.

High vs low fees over time

So let's look at some examples. We'll pick a random global index fund with a low fee and an actively managed global fund from one of Sweden's 4 big banks.

As mentioned we'll be theoretically investing 1000 SEK/month for 10 years with a yearly growth of 6% (the basis for normanbelopp calculations). That would result in 167 660 SEK in total, if there were no fees at all. Now let's look at how much of that will be eaten up by fees.

That's quite the difference no? But what if we stretch the example to 30 years? Now all of a sudden our no-fees investment would be worth 1 005 620 SEK, but we'd only get to keep 80% of it if we invested in Nordea Global. A whopping 200 982 SEK would've gone straight into the pockets of the fund managers. But had we instead invested in the index fund, we would've kept 98,2% of our investment, and only paid 17 617 SEK in fees. Did I say keep the fees low?

Fees and gains

I'd like to take the opportunity to further expand on what I wrote above about being scammed out of your hard earned savings/investment. You see, another way of looking at this, is how much of your gains you end up giving away to fund managers. So let's look at the example above again (30 years):

In other words, after 30 years of investing 1000 SEK monthly, your total stake is 360 000 SEK and thanks to compounding interest you've earned 645 620 SEK in gains (if there were no fees). But if you did this with Nordea Global they would've stolen 200 082 SEK in fees, corresponding to 45.2% of your total gains?! Outrageous if you ask me.

Cheat sheet

I've included a cheat sheet for the example we did above, which I want you to use whenever you're looking at fund fees. In the table below I've listed a bunch of different fund fees from really low to really high. And in each column I've listed theoretical yearly value increases. And in each cell you can see how much of your yearly gains you will end up giving away in fees for a given combination of fee % and theoretical yearly gain.

And as you can see, even at 8% theoretical yearly gain (which is high!) a fee of 1.5% ends up costing you more than 20% of your yearly gains.

Conclusion

Fees are quintessential to a successful passive investment strategy. They need to be as low as possible (index funds) and if you, despite reading this, want to invest in actively managed funds, do your homework. Make sure that fund actually has a track record of beating its corresponding index. And even so, always know that historical performance is no guarantee for future performance, ok?

Are you employed by a company in the private sector that has signed a collective bargaining agreement (🇸🇪 kollektivavtal)? Great news! In that case your occupational pension (🇸🇪 tjänstepension) is managed, negotiated and procured collectively. But wait, what? Collectively? What does that mean?

Well, imagine an episode of Shark Tank (🇸🇪 Draknästet), where we (the workers) are the jury (🦈 sharks) and pension trustee companies get to pitch to us why they should get to manage our money (pension deposits). Sounds too good to be true? It isn't. This is exactly what happens during the ITP procurement process and it's brilliant.

The quinquennial procurement

I mentioned the word "procurement" (🇸🇪 upphandling) and this procurement of pension trustees happens every 5 year for the ITP pension scheme. ITP stands for "industrins och handelns tilläggspension" in Swedish. Roughly speaking that means it's the pension solution for all white collar workers employed in the private sector under a collective bargaining agreement. That's approx 2.2 million workers employed with ~37000 different companies with approx 60 billion SEK in combined pension capital.

The procurement happens every 5 years and this year it's time for the 5th procurement round. The procurement itself is managed by Collectum, an independent actor without profit motive, on behalf of Svenskt Näringsliv (employer cooperation organisation) and PTK (union cooperation organisation). And the procurement consists of Collectum carrying out a review of all current trustees as well as new actors/trustees. And since the combined pension capital of ITP is 60 billion SEK, the competition is fierce 🔥

So how does Collectum pick the top contenders? Main thing they look at is historical performance and fees. Because the goal is to maximise performance and minimise fees. And after they pick their top trustees (at least 3, never more than 5), the final choice is up to you. And then every 5 years you can choose to continue with your current trustee, or switch to another one. Usually there aren't massive changes from procurement to procurement in terms of available trustees. But if your current trustee loses a procurement I'd personally move my funds out of their care and into one of the newly procured trustees (they won for good reason).

The 2 parts of the ITP

Let's look a little closer at how the ITP scheme is set up. So, the ITP pension deposits are divided into 2 equal parts. 50% of your funds are directly deposited into a so called traditional insurance (🇸🇪 traditionell försäkring) and here you only make the choice of which trustee you want. The other 50% can either be kept in the same kind of solution, or be deposited into a so called unit-linked insurance (🇸🇪 fondförsäkring). Here the risks are higher, but so are the rewards. So it's up to you to decide the size of your risk appetite. My rule of thumb would be that the further away from retirement you are, the higher your risk appetite should be 😋

Procurement highlights

Now that we know that there's both traditional and unit-linked insurance, let's look at the highlights of the 2023 procurement:

• For the traditional insurance (🇸🇪 traditionell försäkring) 5 trustees were chosen: Alecta, AMF, Folksam, Nordea and SPP.

• Alecta remains the default choice (if you don't make one yourself). This is because they've performed the best, with the lowest fees. This is true regardless if you look at 5, 10 or 15 years of historical data.

• The average fee for the traditional insurance is now 0,09%

• For the unit-linked insurance (🇸🇪 fondförsäkring) 5 trustees where chosen: Handelsbanken, Länsförsäkringar, Nordea, SPP and Swedbank.

• The average fee for the unit-linked insurance default choice (🇸🇪 entrelösning) is now 0,11%, compared to 0,14% in 2018 and 0,23% in 2013.

• The average fee for the unit-linked insurance optional funds is now 0,21%, compared to 0,30% in 2018 and 0,39% in 2013.

• Investing in the same fund on the open market now cost nearly 4x as much (average fee 0,83%).

• The amount of available fund options has increased by 56% compared to the 2018 procurement. They're now 119 in total.

To clarify, in the unit-linked insurance there's a default choice, and then there are 119 additional funds to choose from. The further away from the default choice you go, the more well-versed in the fine print I think you should be. The default choice is there for a reason, the fees are minuscule and the historical performance great. It's by no means a bad choice, quite the opposite.

Anyhow, the new choices are available from Oct 1st 2023 so just log onto Collectum.se and have at it!

Let's kickstart this pension saving/investment strategy Sweden edition by going over the 3 most common account types, how they work and why I think ISK is the way to go.

There are 3 common account types when investing in funds/shares/bonds in Sweden:

• Aktie- & fondkonto (AF)

• Kapitalförsäkring (KF)

• Investeringssparkonto (ISK)

They all function a little bit differently with regards to taxation and beneficiaries etc. Let's go over them one by one.

Aktie- & fondkonto (AF)

This is a standard investment account, meaning you can trade funds, stock, bonds, exchange-traded funds (ETFs) and all other kinds of financial instruments, and as the account holder you're the sole beneficiary of the account. This means that in the case of your death the content of the account will pass to your estate (🇸🇪 dödsbo).

Tax wise this is an account where your assets are only taxed at point of sale and at 30% of the profit in the case of a gain. Your gains and losses are then documented yearly when you do your taxes (deklaration) by including a so called K4 form. Most (if not all) online brokers can generate a complete K4 form for a small fee (worth it imho!). Do note that you will need to hold on to the 30% profit tax until it's time to pay your taxes, meaning it's not automatically deducted by your broker/bank.

It's worth noting that AF accounts allow you to net your gains and your losses against their own kind. Meaning you can net a loss against a gain, thus reducing the total amount of tax you end up paying. However, this indicates that AF is an account more suitable for less passive strategies (more buying/selling). And since most (if not all) hobby investors would be much better off not meddling in their investment (at all) I won't be recommending AF for passive investment strategies.

Investeringssparkonto (ISK)

This is a standard investment account, meaning you can trade funds, stock, bonds, exchange-traded funds (ETFs) and all other kinds of financial instruments, and as the account holder you're the sole beneficiary of the account. This means that in the case of your death the content of the account will pass to your estate (🇸🇪 dödsbo).

This account was introduced in 2012 as an initiative to simplify investing for the "average Swede". The main simplification revolves around taxation. The simplification consists of you not being taxed for actual income, gains and losses. Instead, a standard revenue is taxed. This means there's no need to keep track of gains and losses or creating a K4 form. Instead, tax is deducted from your ISK account continuously through out the year.

Small note on the taxation %: the taxable amount is calculated as a 1/4 of the sum of:

• the value of your investments at the start of each quarter

• deposits to the account during the year

• the value of any transfers of securities to the account

The taxable amount is then multiplied with the government loan interest rate (statslåneräntan) as per 30th of Nov the year before + 1%. Do note that there's a floor of 1.25% (the tax can never be lower than this).

Since the tax is continuously deducted from the account it creates virtually no overhead for you as an account holder when doing your taxes and makes it well suited for passive investment strategies.

Kapitalförsäkring (KF)

This is a standard investment account, meaning you can trade funds, stock, bonds, exchange-traded funds (ETFs) and all other kinds of financial instruments.

What sets it apart from AF and ISK is the way you can tweak beneficiaries of the account. Meaning you can for example have your kids added as the beneficiaries on the account, which would mean that the money will legally be theirs when they turn 18 (the age can be configured). This also means that in the case of death the value of your KF account will pass to any configured beneficiary of the account (rather than your estate as with AF and ISK). This is worth noting for "sambos" (partners living together) as sambos don't have any legal claim on their sambo's estate (🇸🇪 dödsbo).

Other than that KF is very similar to ISK, meaning a standard revenue is taxed and there's no need to keep track of gains and losses.

Small note on the taxation %: the taxable amount is calculated as the sum of:

• the value of your investments Jan 1st

• deposits to the account during the year (Q1+Q2 deposits: 100% of the value, Q3+Q4 deposits: 50%)

The taxable amount is then multiplied with the government loan interest rate (statslåneräntan) as per 30th of Nov the year before + 1%. Do note that there's a floor of 1.25% (the tax can never be lower than this). This amount is then taxed at 30%.

So as you can see there's a slight difference in how the standard revenue tax is calculated for ISK and KF respectively.

Another major difference, compared to the other account types, is the fact that if you own stock in a company via a KF you do not have the right to vote at annual general meeting, but if you own the stock via a AF or ISK you do. This usually isn't a game changer for most regular investors but it's worth noting.

Conclusion

For passive, long-term (10+ years) investment strategies without the need to configure beneficiaries, ISK is the best choice. You can open one free of charge at any of the best online investment banks in Sweden: Lysa, Avanza or Nordnet.

Why am I not mentioning any of the "big banks" in Sweden? I'll let you know in an upcoming post.

The company Mysafety Försäkringar are currently running adds on social media for their income insurance, and while doing so, taking jabs at unions and the income insurance they provide. So let's take a closer look together. Here's the copy for the Facebook add:

"Only 90 days qualifying period and 11 months of compensation. An income insurance usually has 12 months qualifying period and 7 months of compensation."

So let's see which income insurance will be the best choice for our fictional character Emma, a regular white collar worker with a monthly salary of 41.000kr.

Unionen membership:

• Fee: Unemployment benefit (🇸🇪 A-kassa) 100 kr + membership fee 235 kr = 335 kr

• Salary ceiling: 60.000 kr

• Qualifying period: 12 months

• Compensation period: 7 months (150 days)

• Amount: 70-80% of the base salary

This means that during 7 months of unemployment Emma's income will be ~32.800 kr before tax, ~22.300 after tax (32%). A-kassan covers at most 26.400 kr, so Unionen tops up her salary with 6.400 kr a month.

Mysafety Försäkringar insurance:

• Fee: A-kassa 100kr + insurance fee 199kr = 299kr

• Salary ceiling: 45.000kr (to match Unionen's 60.000 kr the fee goes up to 269kr)

• Qualifying period: 3 months

• Compensation period: 11 months

• Amount: Fixed taxfree sum depending on your insurance fee

This means that during 7 months of unemployment Emma's income will be ~26.400 kr before tax (from A-kassa), ~17.950 kr after tax. And then an extra taxfree payment of 4.352 kr, giving her 22.304 kr a month. And the same is true for month 7-11.

Looks more or less the same right? The private insurance even lasts for longer? 🤷🏻♀️ Yeah, except with Unionen you get a full blown union members for basically the same cost and that includes so much more than just income insurance (free legal help just to mention one thing).

But, as always, the devil is in the details, which means fine print. And, once you start reading the fine print of the MySafety insurance, the choice should be dead easy.

"To be eligible for the insurance, you must be permanently employed for the past 12 months. You must be a member of a Swedish unemployment insurance fund (A-kassa), not over 55 years of age and not have received unemployment insurance in the last 2 years. You are also not allowed to have received a personal notice, or due to your position at the company, be aware of any upcoming notice (varsel)."

Unionen only fine print?

"You need to have worked at least 80 hours per calendar month in total of 12 months during the last 18 months."

Case closed. Union membership FTW.

Before reading this post, do checkout my other post about the Swedish deposit guarantee for background and context.

Now that we're all on the same page, and we know how and in what way your savings are protected, let's look at what protection there is for your investments (bonds, shares, funds and other financial instruments).

In Sweden, along side the deposit guarantee, there's also something called investor protection. This protection kicks in if an institution is declared in default and can't return your assets. It's worth stressing that it's illegal for financial institutions to mix their client's assets with their own. But, as with all things financial companies aren't allowed to do, there aren't any guarantees that it won't happen. Thankfully though, assets like bonds, shares and funds are better protected than your savings. And worst case the investor protection kicks in.

Ok, let's continue. The protection covers all individuals (incl minors), companies and other legal persons (such as the estate of a deceased person). And just like with the deposit guarantee it's counted individually if an account is co-owned.

So what type of assets are covered and what's the maximum compensation? Well, which assets are covered is defined under the Securities Markets Act and some of the most common examples are:

• shares

• bonds

• derivative instruments

And the maximum compensation amounts to 250 000 kr, and your compensation is calculated based on the market value of the relevant securities at the time of the institution’s failure. It's worth noting that the investor protection does not compensate for any changes in value of shares or other securities.

With this in mind it's my recommendation to try and spread your investments across more than one financial institution, especially if your investment portfolio is worth more than the investor protection will reimburse you for. This does add complexity to your account setup and you'll have to weigh the pros and cons. I'd definitely never keep more than the deposit guarantee in one place, with investor protection I'm not as adamant. You do what's right for you.

And as mentioned before, my top 2 banks for investments in Sweden are Avanza Bank and Nordnet Bank AB. And if I also include robo investors in this category (the company invests on your behalf rather than you choosing what shares or funds to buy) I can also highly recommend Lysa, Opti and Fundler. But more on that in another post.

For those of you who were around for the 2008 financial crisis the word "deposit guarantee" (🇸🇪 insättningsgaranti) might've stuck somewhere in the back of your mind. But the Swedish version has actually been around since the financial crisis of the 90s, to be exact it came into effect 1996.

But what does it actually mean? And should it impact how you think about where to keep your savings? The short answer: yes. So let's look at how it works.

As one can elude from the name, someone/something guarantees something for someone else. Specifically it guarantees that you, the owner of a savings account with a certain bank, will be reimbursed by the state if the bank goes bankrupt. The guarantee is valid for all individuals (incl children) along with companies and other legal entities.

How much? Currently the guarantee caps out at 1 050 000 SEK per person + bank. Meaning you are covered above 1 050 000 SEK as long as you make sure to never keep more than that with one single bank.

It's also worth noting that if a savings account has multiple account holders the guarantee is counted for each person individually (not collectively). Furthermore, the guarantee is not affected by owing a certain bank money (having a mortgage for example).

Are all banks and all accounts automatically covered by the deposit guarantee? No, only cash is covered (meaning savings accounts), not financial instruments such as stock/funds/bonds/ETFs. Furthermore each company offering a savings account must apply to have their savings account approved by the National Debt Office (🇸🇪 Riksgälden). If it's not approved it won't be covered by the deposit guarantee and the company must clearly inform their customers of this.

Just so you know though, the 3 best banks in Sweden (imho):

Lysa, Nordnet and Avanza, are all covered by it.

But what about your assets like shares, bonds and funds? Aren't they covered? No, not by the deposit guarantee. But, there's a separate version called the "investment guarantee" which I'll cover in an upcoming post. Stay tuned!