Discouraging figures have emerged from Sweden’s Premium Pension Authority as to the latest round of fund selection for pension contributions, held in the spring. Of the 500,000 new contributors to the national pensions system, of whom 325,000 mainly in the 18 to 27 age group, only 18% of these chose the funds to which their Skr659m premiums should be allocated amounting to Skr130m, the balance going to the ‘default AP 7 Fund’. “It is disappointing that more people did not actively chose their funds,” said Une Lindohf, information officer at the PPM, when addressing the conference in Copenhagen. Altogether, in this selection some Skr659m was to be invested in the PPM system.
In the earlier round, where 4.4m Swedes were entitled to apply SKr56bn to the PPM range of mutual funds, some 66% made an active choice in respect Skr44bn, with the balance going to AP 7. In both selections, 3.4 funds were chosen on average. The PPM’s information package was the main source of information about the funds, the PPM surveys found.
The same pattern of fund investment was followed this time as in the first round where Skr12bn went into foreign equities and Skr6bn into Swedish equities, which helped drive the currency down at the time, he pointed out. While Swedish managers again topped the ‘top five’ list, two foreign managers Pictet and Carnegie did well. “There were more signs of foreign managers,” he said. International managers became more important in the second round, which he attributed to the difference in generations, with the younger generation being more outward looking.
What was worrying was that in both rounds, those who chose AP 7 actively wanted to make a safer choice. “We want to get away from that idea, as it is no safer than any other fund with the same asset allocation.” There has not been much switching so far, some 60% of those actively choosing AP 7 said they intended taking responsibility for their account later on. The PPM will be concentrating their “educational efforts” on getting the message across that there is no inherent difference between AP 7 and other funds.
He noted that there would be 100,000 new faces joining the system each year, with Skr120m to invest on top of the existing Skr20bn inflow each year. “It may be hard to get people to switch once they have made the choice, but investors seem to stay where they are.”
But many people say they want to make a selection of funds in the future. But it seems to be the managers that are well known, particularly among the Swedish managers, that get the business. “People have to know who the fund manager is.”