The Swedish government has been considering the future of its AP Fund system since 2011 but, until recently, with little discernible progress. Thanks to the nature of Sweden’s political system, however, plans first drawn up by the right-leaning government of Fredrik Reinfeldt survived and were championed by the current left-of-centre government led by Stefan Löfven.
The Swedish notion that pension reform be agreed within the cross-party Pensionsgruppen – a body comprising representatives of Löfven’s Social Democrats, the four main opposition parties and, since joining government in 2013, the Green Party – might suggest that any changes would be uncontroversial and pragmatic, enjoying widespread support.
Yet plans announced this summer have enjoyed very little support. They have instead been roundly criticised by the AP Funds themselves, the former chairman of the Buffer Fund Inquiry Mats Langensjö and, more recently, a small opposition party who had previously approved the proposals.
The idea that the number of buffer funds should be reduced from five – AP funds 1-4 and private equity fund AP6 – has remained unchanged throughout. Under the plans announced this summer, AP6 would merge with AP2, which would be put in charge of unlisted assets, ostensibly to tackle management costs. A second fund would also be closed, but which of the three it would be is unknown.
The proposals also recommended establishing a National Pension Fund Board, which would influence investment by setting out a risk budget by which the funds must abide, exposing them to the risk of political interference, according to some.
Critics have said the proposals are “costly and dangerous”. They also warn that the plans could “destroy” the buffer fund system, and that the risk budget arrangement could see a shift towards passive investing that would result in “undesirable standardisation”.
AP3’s managing director, Kerstin Hessius, echoed her AP1 colleague Johan Magnusson’s concerns that the new system would be inflexible. She also questioned why no one within government seemed willing to take ownership of the reforms, adding that Löfven’s ministers only seemed willing to stand up for proposals on the sustainable management of fund assets, a stated aim of deputy finance minister Per Bolund of the Green Party.
However, Bolund has repeatedly been forced to defend the reforms, not least since the Liberal People’s Party (FP) distanced itself from what had been agreed within the Pensionsgruppen. Bolund stressed that the concerns about political interference raised by FP were unfounded, and insisted that the National Pension Fund Board would ensure any decisions taken would be in the best interest of beneficiaries, rather than due to government direction.
It remains to be seen whether the support of government and three of the main opposition parties will be sufficient to ensure that the reforms pass into law, although parliamentary arithmetic would make this likely.
The AP funds have not given up calling for a rethink. They have also placed renewed emphasis on demonstrating how they are cost-effective compared with their peers and achieve returns above and beyond target returns. Their voice is guaranteed to be heard in what is a national debate, emotive owing to each Swede’s stake in fund assets. But, as with any challenger taking on prevailing orthodoxy – and one that may be overturned by a change in government – critics are likely to win the occasional battle on specific proposals but not the war.