The Swedish Investment Fund Association (Fondbolagens förening) has warned in its written response to the ongoing consultation on proposed changes to Sweden's PPM system that if implemented, they would lead to lower pensions in future - while certain elements of the proposals as they stand may run counter to both Swedish and European laws.
Detailed proposals were put forward by the Swedish government in the last quarter of 2019 (https://www.regeringen.se/rattsliga-dokument/statens-offentliga-utredningar/2019/11/sou-201944/) as it outlined its thinking around changing the current PPM system from one of offering a fund supermarket in which to self-select funds, to a platform in which the starting point would be administration by the AP 7 buffer fund in the guise of a new government agency, with, essentially, state sector employees making selection choices on behalf of long term savers.
The preimum pension is a pillar of the Swedish long term savings regime, in which a portion of mandated savings taken from earnings are diverted to funds. Historically, the platform offered the broadest selection of funds, but following a series of politically sensitive events, such as bulk transfers pushed through by intermediaries harvesting users' PIN codes (https://www.investmenteurope.net/investmenteurope/news/3703008/change-law-funds-switching-swedish-pension), concerns around commission payments (https://www.investmenteurope.net/investmenteurope/news/3707534/rules-announced-funds-seeking-ppm-distribution-%E2%80%93-commission-banned) and the disappearance of savers' assets (https://www.investmenteurope.net/investmenteurope/news/3714032/falcon-funds-%E2%80%93-ppm-changes-expected-june), the Swedish Parliament pushed through new rules in 2018, which sought to close off loopholes in the prevailing legislation (https://www.investmenteurope.net/investmenteurope/news/3719011/ppm-changes-confirmed-swedish-parliament). Subsequently, the government ordered an inquiry into the future of the platform.
In its response to the proposed changes the Fund Association has identified what it sees as significant downsides for users of PPM, who are using collective investment schemes to build up savings for use in retirement:
- The proposals for a complex selection architecture, with the introduction of a number of hurdles for savers who wish to make their own choices in practice limits freedom of choice, skews competition and probably runs counter to the EU's rules on state support.
- The proposed fund purchasing process is not compatible with fundamental principles for public sector purchasing. Selections made would influenced by subjective judgements, something that runs counter to prevailing legislation.
- Public sector workers at an agency are, according to the proposals, going to decide which funds provide best returns. Predictions of future return over a long period cannot be done. There is a high risk that purchasing fails and that it is not the "best" funds that are acquired.
- The problems will be accentuated by the fact that pension savers' choices will be subject to tests. Their assets will be shifted from funds they have selected to funds they have not selected, but which the state has selected. The state's responsibility for the outcome of purchases and forced shifts will be questioned by savers.
- The proposed purchasing would create flows of a size that have not previously been seen in the market. These cannot be handled without negative effects on transaction costs and returns. This counters the objectives of achieving better pensions.
- The proposals mean that the funds taking part must be able to receive enormous amounts of capital shifted from the funds that are pushed out of the system. Most active funds cannot receive such amounts of capital without reconsidering their focus and investment goals. Many of the "best" funds will not be able to participate.
- Terms for funds on the platform will not be able to be changed for long periods. Market developments in the form of views on sustainability, innovation and price pressures will not be able to be handled. The fund range will be stuck. This counters the shift towards sustainability and the objective that the platform should offer the "best" funds.
- The introduction of a new government agency, the introduction of complicated purchasing processes, testing of choices and the introduction of a complex selection architecture will be costly. These costs are, according to the proposals, to be shared between fund companies and savers.
- The costs to implement the proposals do not stand in any reasonable proportion to eventual benefits. On the contrary, much points to the proposals leading to lower pensions.
To read the full consultation response (in Swedish), click here: https://mb.cision.com/Public/16395/3033967/9a7be023defcc304.pdf