Stability aims in Swedish pension system to cull funds in market

Jonathan Boyd
clock
Stability aims in Swedish pension system to cull funds in market

Proposals put out by the Swedish government to introduce more stability to the country’s pension system will come at the cost of a cull of many of the most popular funds self-selected according in the Premium Pension (PPM) pillar, the Swedish Investment Fund Association has warned.

A memorandum put out by the Ministry of Finance (http://www.regeringen.se/4afca8/contentassets/8fd33ed4bf2f4b0d958c74d7b113773a/ett-tryggt-och-mer-hallbart-premiepensionssystem.pdf ) proposes a number of key changes:

  • Changes to social security rules, law on AP funds, and law on contracts agreed over distance and outside business premises
  • New regulation of the Swedish Pensions Agency’s ability to agree deals with fund providers and asset managers; requirements of portfolio managers to seek approval to offer one or more funds on the PPM fund platform; specific requirements that must be met for any contract with the Pensions Agency; clarifying the Pensions Agency’s responsibilities as guarantor
  • Requirements that every securities fund on the platform must provide information needed to understand its approach to sustainability
  • Government regulations regarding performance history and minimum assets under management, including a requirement that the largest share of AUM must be represented by capital invested via the PPM platform
  • A requirement for individual savers/investors’ signatures to approve fund selection and switching
  • Requiring the Pensions Agency to charge a fee from fund providers to cover its costs for handling applications and ongoing oversight of fund providers and funds
  • Banning telephone-bassed marketing and sales of products in the PPM area

The changes in law are proposed to take effect by 1 July 2018, although there is a consultation process in effect until 19 February (http://www.regeringen.se/remisser/2017/12/remiss-av-promemorian-ett-tryggt-och-mer-hallbart-premiepensionssystem/ )

Commenting further on the memorandum, the minister responsible for financial markets, Per Bolund, said it was high time to introduce such changes.

“In recent years a number of scandals and potentially criminal deeds have been brought to light among the funds that can be selected on the platform. This is unacceptable. Beyond [the] changes that aim to make the platform safer the proposals include a requirement that only funds that are actively engaged in sustainability are allowed on the platform.”

The ability to water down the proposals may be limited as they already have the backing of the so-called Pensions Group in Parliament, which is a cross-party group responsible for ensuring broad agreement on law and regulations as they affect long term savings in the country. The Group includes representative of six of the biggest political parties, who collectively account for 277 out of the 349 currently sitting members of Parliament.

Criticism

Fredrik Nordström, chief executive of the Swedish Investment Fund Association, has commented that the proposal in the memorandum risk creating further problems, especially because of the hard limits on which funds will be eligible for PPM going forward.

For example, he notes that many of the funds that risk being blocked from distribution via the PPM platform because they do not meet the minimum requirements for the proportion of AUM that is attributable to PPM investments, are not just popular but are among the best performing funds on the platform currently based on historic returns and levels of fees.

“It is totally natural that investors have flocked to these funds over the years,” he said.

The proposals affect one in six funds on the platform, about half the relevant assets, and two-thirds of long term savers with their own fund portfolios. Some 70% of the most popular funds are hit by the proposals, Sifa estimates.

Additionally, funds that have actually been tailored for PPM investments will be hit by the proposals, Nordström adds.

“They must sit down and think through the objective of proposals that shut down many of the best and most popular funds in the system, and that shift future savings to the ‘non-selected’ – a fund that active investors have already selected out. If the funds are rogues then they should go, not be stopped from buying into. It is the other 29 changes proposed that should be used to exclude rogue players.”

More on