Pension providers can often be heard complaining that it is hard to get people interested in pensions, but the recent sharp acceleration of Sweden’s premium pension system (PPM) reform process suggests scandal is one thing that will really grab the attention of the public – and politicians.
The funded state pension system – created in 1994 as part of a major set of pension reforms in the Nordic country – has been officially under review since 2014. The finance ministry has just enlisted Stefan Lundbergh to bring the reform options rapidly into focus.
Lundbergh, director of Cardano Insights and a supervisory board member at the fourth AP pensions buffer fund (AP4), has been given until the end of August to set out a range of structural changes that could be made to the PPM. These will be passed to Sweden’s cross-party pensions group for consideration.
The minister for social security, Annika Strandhäll, has described cases of misinformation and pressure-selling by some investment firms within the PPM in the past year as “outrageous abuse” of the system.
As Lundbergh begins his work, the government is putting in place a short-term plan to deal with the fraudulent activity. Meanwhile, Lundbergh will map out the longer-term changes that could be made to stabilise the system.
The idea of having a broad parliamentary pensions group to safeguard the 1994 reforms was an attempt to keep the whole issue of pensions protected from the frequent changes that short-term thinkers in government might make.
Consisting of elected politicians from Sweden’s many different political parties, the pensions group can only make changes if there is unanimous agreement.
However, the need for broad consensus can make it harder to reach any decision at all, as evidenced by the breakdown in late 2015 of proposed reform of the AP national pension fund system.
“The 1994 reform and the cross-party agreement have given a unique long-term approach to the pension system,” Lundbergh says. “It has been stable for 20 years, but now and again the politicians do have to approve some maintenance as the world evolves.
“But pensions are a sensitive issue and all the political parties have to agree to change the structure, and so it’s very difficult to make amendments and improvements. Now, though, there is a sense of urgency about it.”
This urgency has come partly as a result of the scandals, but also because of the political timetable.
Sweden’s next general election is scheduled for September 2018. Since political activity in the months leading up to a nationwide parliamentary vote is dominated by campaigning, discussions about possible reform of the PPM system will have to take place in the autumn of this year if they are to conclude before the election.
Lundbergh’s brief from the finance ministry is for him and his team to lead the politicians in the parliamentary group through various potential structural changes that could be made to the PPM.
“They’ve asked me to make a road map of possible solutions without giving any strong directions to go this way or that,” he says.
“The pension group wants a relatively open look at the problem, to see what alternatives they have, the challenges that exist with different alternatives, lessons from other countries and how behavioural aspects impact the choices individuals make.
“Choosing between all of these alternatives will involve trade-offs, and different people tend to prefer different trade-offs.”