SWEDEN – 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, on Wednesday said Karl-Olof Hammarkvist, professor at Stockholm School of Economics, had been appointed special investigator to evaluate the pensions system.
Lund said: “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 said. “The PPM saver has to make complicated choices and therefore need to be fully informed.”
And Lund made the rhetorical comment: “It is an overwhelming amount and variety of funds and therefore one must ask oneself if so many funds really are necessary? Does this make the choice difficult? Are there alternatives? Should we drastically reduce the amount of funds and choices?”
Many Social Democrats as a result 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. The special investigator is to give an opinion on whether or not more information and assistance might not give higher returns and thus minimising the risk of long-term shortfall.
Two, the number of funds and their composition and to see whether or not the premium pension system actual function today is a problem for the individual premium pension saver as far as clarity, simplicity, usefulness and risks are concerned. If this is the case the investigator will suggest alternatives and improvements. There is also the possibility that special funds, for example hedge funds and illiquid investment categories, such as private equity and property, could be used.
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 October 31, 2005.