The Swedish Premium Pension System is to be investigated and the free choice of funds possibly reformed as 90% of savers are in deficit.
Sweden created the Premium Pension Authority (PPM) in 2000 as, in effect, a synthetic unit-linked insurance company offering the population free choice to 86 fund managers and 664 funds, as at the end of 2003. But 90% of savers are in deficit and an investigation has been ordered and a new director general of the PPM, Christina Lindenius, appointed to replace Hans Jacobsson in September, when he leaves to head a commission on securities legislation.
Gunnar Lund, deputy Finance Minister, says that Karl-Olof Hammarkvist, professor at Stockholm School of Economics, has been appointed special investigator to evaluate the pensions system.
Lund says: “The premium pensions is an important part of our pensions system and, therefore, it is very important that the system and PPM operates efficiently. So far it has proven efficient but there has been issues raised. If one compare the Swedish Premium Pension system with other countries systems ours seems to be relatively expensive.”
In particular, the negative returns of so many savers showed the need for guidance, he says. “The PPM saver has to make complicated choices and therefore need to be fully informed.”
Many Social Democrats have called for a more limited choice of fund companies to be offered to investors, although due to the all-party support for the initial legislation such changes would be very difficult to enact.
Lund pinpointed three areas of special interest. One, the information and assistance given to individual premium pension savers by participating fund managers as well as the PPM.
Two, the number of funds and their composition and to see whether or not the premium pension system functioning today is a problem for the individual saver as far as clarity, simplicity, usefulness and risks are concerned.
Three, the systems costs in the form of fees from participating fund managers and also evaluate the long-term effects of the system’s overall costs.
The investigator will also evaluate the possibility to successively switch from unit-linked to an annuity so as to minimise the risk for the individual premium pension saver as retirement approaches.
The special investigator is to submit his report by end October 2005.