A report by the Swedish Social Insurance Inspectorate on administrative costs in the country’s pension system has found a lack of transparency in these fees, which it said could be problematic if pension savers did not know how much they were paying.
The inspectorate, or ISF (Inspektionen för socialförsäkringen), said its report had taken a closer look than before into social security administration costs, productivity and quality.
The ISF is an independent supervisory agency for the Swedish social insurance system and an agency of the Ministry of Health and Social Affairs.
The report found that some of the administrative costs for both the AP funds and the premium pension providers – for example, the transaction costs and other fees associated with transactions – were difficult to estimate.
Magnus Medelberg, one of the authors of the report, said: “It is also not self-evident what should be calculated as administrative costs.”
The ISF had one definition in the report, but administrative costs could also be defined in other ways, he said.
Asked whether the lack of transparency were a problem, Medelberg said: “It is a problem if pension savers do not know, and cannot easily find out, how much of their pension fees go to their actual pensions and how much goes to different administrative costs.”
Among the report’s main findings was the conclusion that administrative expenses for pensions and other benefits to the elderly had increased over the past decade, in absolute terms, and were now higher than the administrative costs of health insurance.
The report found that administrative costs for the AP funds 1-4 and 6, the so-called national pension buffer funds, were roughly the same in 2014 as they had been in 2005, the first year of the inspectorate’s study.
However, administrative costs for the premium pension funds – AP7 and the private premium pension providers – have increased by 71% over the same period, in real terms, according to the report.
Medelberg said the increased costs in the premium pension funds depended to a large degree on the construction of the Swedish pension system.
The main reason for the increase was the fact the premium pension system was still rather young, he said.
Having been launched in 2000, the amount of capital in the system is increasing year by year, and the total fee paid by pension savers rising along with that, he said.