Swedish pension providers Folksam and Skandia have spoken out against a new development in the government’s planned legislation to make it easier for individuals to switch their pension from one company to another.

The two firms say they could live with the original proposal, but now parliament has begun to discuss major changes that risk reducing their customers’ pensions.

Citing comments made by Ylva Wessén, deputy chief executive of Folksam, and Skandia’s chief executive Frans Lindelöw, in a joint interview in Swedish business daily Dagens Industri, Folksam said in a statement: “Radical proposals must be carefully investigated by the government.”

In April the government began to act to make it easier for individuals to switch their pension from one provider to another without incurring tax consequences, aiming to clarify rules around the fees pension and insurance companies may charge.

Folksam said that in the government’s transfer rights bill it originally proposed giving the pension fund a customer leaves the right to charge a transfer fee covering the remaining purchase costs for 10 years. But on 10 October, the parliamentary finance committee discussed whether a provider’s right to charge the fee should be reduced to five years.

‘Adverse effect for 1.5 million customers’ 

The committee was also considering whether the government should introduce additional retroactive legislation covering transfers from 2007 onwards, Folksam wrote.

“If the new proposal is implemented, pensions will be reduced for our 1.5 million customers who have pension savings with a guarantee, i.e. traditional insurance,” it said.

Folksam said the proposal would have a particularly adverse effect on providers of traditional or average-rate pensions, where providers guarantee customers a certain pension to be paid out evenly over time, as opposed to companies providing market-rate schemes in which savers can influence investments and are responsible for the risks.

It argued that long-term investment is the most effective way to grow customers’ pensions and, if the period in which a pensions firm can keep control of an individual’s savings is shortened, it would be forced into making short-term investments.

“With a five-year limit, a larger portion of the pension capital would be invested in interest-bearing securities that tend to have lower returns than equities, infrastructure and real estate,” Folksam argued, adding that it currently offers a minimum of 10-year contract periods to enable a good return on pension savings.