In its latest salvo against the reform of Sweden’s premium pension system, the country’s funds lobby group says trackers are being given preference, even though its analysis shows passive funds return no more than actively-managed funds.
The Swedish Investment Fund Association (Fondbolagens förening) claimed in a statement yesterday that new rules being proposed favour index funds, without any clear benefits for pension savers.
Fredrik Nordström, the industry group’s chief executive officer, said: “Our review of returns in different fund categories shows that index funds have not given savers a higher return in the premium pension.
“So, as the investigation suggests, there is no reason to specifically redesign the system to highlight index funds,” he said.
Releasing a report entitled: “Should index funds be given a special position in the premium pension?” Nordström said savers would not get better returns under the reform, which made the system unnecessarily complicated and concentrated the pensions money within a few providers.
In the last few years, amid scandals over rogue players, Swedish authorities have been grappling with changes to the premium pension system – the defined-contribution portion of the state pension which allows individuals to choose investment options themselves.
In November, in the report “A better premium pension system SOU 2019: 44”, new rules were proposed to replace the system’s current funds marketplace, which currently includes 482 funds from private-sector providers, with a procured range of options for Swedish savers.
Mikael Westberg, the special investigator working on the reform, has suggested the procured marketplace might only contain between 150 and 200 funds.
The Investment Fund Association said the proposal would make it more complicated for savers to make their own fund choices, and that savers who still wanted to make their own choices would initially be directed towards index funds in the “category selection” step.
In the end, the association said, the choice architecture did give the opportunity for individuals to choose from a number of procured funds including actively-managed funds.
“But even in this somewhat broader fund square, the procurement format itself will be directed towards, primarily, index funds that are able to handle large and sudden capital flows in connection with the procurement,” it said, adding that capacity criteria would be put before quality criteria.
In the association’s analysis, it concluded that index funds in the Sweden category had generally delivered a below-average return within the grouping, with trackers in the Global Funds category occupying the middle of that returns ranking.
It identified 42 of 468 funds listed by the Swedish Pensions Agency (Pensionsmyndigheten) on the funds marketplace as being index funds.
Back in November, immediately following the report’s publication, the lobby group singled out other aspects of the reform for criticism, saying the proposed changes – which set out a broader role for national pension fund AP7 – would lead to too much power being placed in the hands of a single state agency, and did not strengthen consumer protection.