As Sweden’s largest pension fund, Alecta, struggles with a crisis over bad investments, the head of rival provider Skandia has called on employers to change the occupational pension system that it said perpetuates and increases Alecta’s dominance.

Frans Lindelöw, Skandia’s chief executive officer, said the Confederation of Swedish Enterprise (Svenskt Näringsliv) should launch an investigation to review how to improve the way the system works, according to a statement by Skandia – based on comments made by its CEO in an interview with business daily Dagens Industri.

As things stand now, all pension contributions from employees not actively choosing a pension provider go automatically to Alecta, Skandia said, adding that it believed the sharply increasing concentration of capital under Alecta’s management could become a major risk for Swedish pension savers.

“I am raising a red flag,” Lindelöw said.

“The reason is that the many billions going to Alecta each year, and the fact that most of this comes from pension savers who didn’t choose the company themselves,” he said.

“Today, there is no free competition on the Swedish pension market and that should be something that the Swedish Confederation of Enterprise wants to protect,” the Skandia CEO said.

Over the last 10 years, pension capital managed by Alecta had grown to over SEK1.2trn (€104bn) from SEK600bn, Skandia said, adding that it was reasonable to expect that in another ten years, Alecta’s capital would amount to approximately SEK2.5trn.

Frans Lindelow Skandia

Frans Lindelöw at Skandia

Lindelöw said: “It creates a vulnerability and a social risk when just a few people control such a large proportion of the Swedish pension money. It is bad for pension savers but also for free competition.”

In the longer term, he said, the arrangement was also a risk for the entire Swedish business community.

The system of occupational pensions for private employees was undergoing a major shift from defined benefit to a fully defined contribution system, ITP1, Skandia said, adding that future pension levels were becoming dependent on investment returns.

“My call to The Confederation of Swedish Enterprise is to develop a completely new model based on three criteria; it must counteract unhealthy capital concentration, it must be characterised by relevant freedom of choice and sustainable investments,” Lindelöw said.

“Customer choices is what should absolutely be in focus,” he said.

Reporting Lindelöw’s comments, Swedish pensions newsletter Pensionsnyheterna said the Confederation of Swedish Enterprise was unlikely to follow the Skandia CEO’s call, since the employers’ organisation owned Alecta together with the joint trade union organisation PTK.

Pensionsnyheterna also said a political initiative would be needed for the current structure of the occupational pension market to change – which was also unlikely, it said, as politicians had always been reluctant to intervene in areas where the social partners ruled.

Back in March, just as the scandal around Alecta’s huge losses on niche US bank investments was beginning, it won a new five-year mandate as the default provider of the country’s white-collar occupational pension scheme.

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