Sweden moves to introduce IORP II-style legislation

Key points

  • Implementation of IORP II legislation is mostly set to take effect by December
  • New investment freedom for AP funds 1-4 has been in force since January, but more leeway is demanded
  • Subsequent proposed AP1-4 mandate amendment fails to satisfy regarding direct investments
  • Swedish Pensions Agency continues to approve applications for re-admission to the Premium Pension marketplace 

Despite missing the 13 January 2019 deadline for incorporating IORP II into national law – along with many other EU states – Sweden is moving ahead with implementation of the occupational pensions directive. It has already laid the groundwork by creating a new type of occupational pension company to ease compliance with the EU-wide rules.

In July 2018, the Finance Ministry proposed new regulations for occupational pension companies in connection with IORP II. These allow those that only offer occupational pension insurance – provided they meet certain requirements – to be converted into occupational pension companies. 

The draft law also made it possible to create new occupational pension companies.

In April, Sweden was one of 12 countries to have infringement cases opened against it by the European Commission for having failed to communicate any transposition measures for IORP II. 

In the middle of the following month, the Finance Ministry submitted its draft new rules for pension foundations (pensionsstiftelser) and separately for occupational pension companies (tjänstepensionsföretag) in connection with IORP II to the Law Council. The legislative amendments contained in both proposals are mostly set to come into force in December.

However, there are signs of continued discontent with the proposed law, with the trade union joint organisation PTK in June calling on the government to suspend the implementation rules, saying the changes made since the original proposal were not sufficient.


In another area of pensions, the regulations limiting how Sweden’s national pension funds, the AP funds, may invest underwent more changes in the last year and remained the subject of much debate.

In November 2018, the Swedish parliament approved the bill to change the investment mandate for the main four buffer funds, AP1-4, with the changes taking effect at the beginning of January 2019.

The funds made plans to adjust their investment portfolios to take advantage of their new freedom. Under the revised mandate, the four funds may allocate a higher level of capital into illiquid or alternative investments, and the minimum portfolio allocation they must have to interest-bearing securities has been reduced to 20% from 30%.

The requirement for the funds to use external managers for a proportion of their assets has been removed. The new law also introduces an objective for the funds to manage pensions assets in a way that contributes to sustainable development.

However, further changes have been requested by the pension funds and mentioned by consultancy McKinsey in its report on the AP funds published in April. These include giving the funds the possibility of investing in, for example, unlisted credits, direct ownership in assets other than property, or co-investments with external fund managers in unlisted companies.

In May, the Finance Ministry addressed this, publishing draft legislation set to take effect in March 2020. In this, the ministry said it was seeking to increase cost efficiency   and return potential and give the AP funds the same set of options open to similar institutional investors regarding long-term illiquid assets, while also increasing sustainability.

Among the proposals in the memorandum, the funds would be allowed to invest in illiquid credit, but only via funds. The draft legislation also extended the funds’ freedom to make loans to real estate companies and riskkapitalföretag (holding companies for unlisted investments) they hold shares in.

But the Finance Ministry retained the restriction on the four AP funds undertaking direct lending. It also said they should not be permitted to make direct investments in infrastructure.

The proposal disappointed the buffer funds themselves, with AP4 saying in the ensuing consultation – which ended on 24 June – that the ideas contained in it still had substantial limitations and did not provide opportunities that were needed to achieve the desired purpose.

Sweden’s reform of the premium pension system (previously known as the PPM) continued during the year. About a third of the funds previously listed on the system’s fund marketplace were effectively culled by the end of December 2018. 

This was the deadline for fund providers to apply for re-inclusion in the marketplace, and the exercise resulted in 269 funds being deregistered. Applications were then evaluated by the Swedish Pensions Agency (Pensionsmyndigheten), with funds gradually receiving approval, in a process that was still continuing at the end of June 2019.

In the second phase of the reform, the Pensions Agency will take on the role of an institutional fund buyer as the funds marketplace becomes a procured system. It will still offer a broad choice but with more of a guided open-architecture offering, according to the agency.

In April, it introduced functions on its website to make it easier for customers to choose sustainable investment funds on the premium pension fund platform.

The role of national pension fund AP7 came under the spotlight in June when pensions expert Mats Langensjö presented his report ‘Default option within the Premium Pension’, which the government had commissioned.

New faces at Sweden’s AP funds 

This summer, several new faces were introduced to the management and supervisory boards of Sweden’s AP funds. 

The smallest of the five buffer funds, which back the income pension component of the general or state pension (allmän pension), gained a permanent chief executive, while the other AP funds made new appointments to their supervisory boards.

Specialist private equity investor AP6 – which with SEK34.7bn (€3,2bn) of assets is only about a tenth the size of AP1-4 – appointed Katarina Staaf as its new permanent chief executive in June, to replace Margareta Alestig who took the top role temporarily in March.

Staaf will permanently succeed Karl Swartling who left the Gothenburg-based fund earlier this year. She has been a member of AP6’s supervisory board since 2017, and has worked in several private equity and asset management positions.

In May, the Swedish government made a long list of changes to the supervisory boards of the AP funds, including new chairs for AP1 and AP3 and three new deputy chairs.

Announcing the reshuffles, financial markets minister Per Bolund underlined the importance of the funds’ boards having a wide set of skills – from

asset management, to business and sustainability. 

Urban Hansson Brusewitz has become the new chair of AP1, replacing Urban Karlström, and Christina Lindenius is now in place as the new permanent chair for AP3, filling the vacancy left after former chair Pär Nuder left in March. 

He said that as part of the premium pension system reform process, investment rules for the SEK460.1bn pension fund, which currently runs the premium pension default option – the balanced Såfa fund – should be aligned with those for buffer funds AP1-4. This, he said, would give the default option greater and better conditions to act as a truly long-term pension fund.

Langensjö also favoured making a clear separation between the saving phase and the payout phase of the premium pension, which forms part of the first-pillar state pension.

He proposed redesigning the default option as a single diversified growth portfolio, with more opportunities for long-term and alternative investment strategies, and more flexibility regarding daily trading and valuation requirements.

The default fund should no longer give savers the choice between different risk profiles, he said. Other proposals include responsibility for the payout phase of the premium pension passing entirely to the Swedish Pensions Agency, and AP7 being removed from the supervision of the Swedish financial regulator, which Langensjö deemed inappropriate for several reasons.

The amendments are proposed to take effect in January 2021, with AP7’s two building block funds being discontinued by January 2022.

Among other pensions developments during the last year, in April, financial markets minister Per Bolund announced a proposal to make it easier for individuals to switch their pension providers, putting forward legislation to allow transfers with no tax consequences.

The draft also attempts to clarify rules around the fees that pension and insurance companies may charge. This new legislation is due to take effect in January 2020.