The Impact of Glide Path Design on Pension Outcomes in the Swedish Market

Sammanfattning

This study examines how different glide path designs affect terminal wealth and outcome uncertainty for Swedish pension savers, using historical Swedish equity and bond data over the period 1987-2022. Four strategies are evaluated across investment horizons of 20 and 30 years using a rolling window methodology based on annual returns. Two strategies de-risk toward bonds in the final years of the accumulation period, differing in the timing and speed of equity reduction. Two additional strategies rotate from a broad market portfolio into volatility-sorted equity portfolios in the final five years, serving as an alternative de-risking mechanism. The results show that a delayed and more abrupt reduction in equity exposure generates higher mean terminal wealth than a traditional glide path, with differences of approximately 15 and 20 percent at the 20- and 30-year horizons respectively. Higher expected wealth is accompanied by greater outcome uncertainty. Most notably, a strategy that rotates into low volatility equities in the final five years generates the highest mean terminal wealth of all strategies examined. It reaches a terminal wealth multiple of 39.8 at the 20-year horizon and 275.8 at the 30-year horizon, compared to 26.0 and 157.6 under the traditional glide path. These findings are robust to the lump sum assumption, as the strategy ordering is preserved under annualized contributions equivalent to 1,000 SEK per month. The results suggest that the standardized glide path structures applied across the Swedish pension market may lead to economically meaningful differences in outcomes for a large share of savers. They also indicate that equity rotation toward low volatility stocks represents a potentially superior alternative to conventional bond-based de-risking.