Sweden’s cross-party Pensions Group has reached agreement on how investment funds will in future procured for the reformed Premium Pension System, and given the green light to slash the number of funds savers can choose from.
The health and social affairs ministry yesterday evening announced details of the plan for the first-pillar system of individual pension accounts – part of the overall state pension – and how it would function following the second stage of the system’s reform.
The Pensions Group agreed back in 2017 that the platform, called the funds marketplace (fondtorget), would be a procured one rather than the current system where all applications from private funds meeting set criteria are accepted. It also decided it would operate under a principal, which last September was decided would be a board authority.
But it has taken years for the group to decide more precisely how the platform would function.
One point resolved in yesterday’s agreement is that the number of funds to be included will be drastically lower than current levels, and probably between 150 and 200 funds.
At the end of January, 485 funds were listed on the funds marketplace, including the Såfa default option run by the national pension fund AP7, according to data from the Swedish Pensions Authority.
On this point, the Pensions Group’s statement reads: “In line with what is stated in the official government report ‘2019:44 A better premium pension system’, it appears probable that the number of funds will be on a par with the maximum number within the elective part of the occupational pension, ie 150–200 funds.
“However, this should not be seen as a maximum ceiling, and the question of the number of funds will be decided by the new authority in professional procurement,” the group said.
According to the agreement, this new authority will procure funds with different risk levels and investment orientations, achieving a selection broad enough to offer real freedom of choice.
The funds must be cost-effective, sustainable, controllable and of high quality, the group said, and the procurement must take place on a strictly professional and market basis.
Funds not just about price
The only consideration to be taken into account in the selection of funds to offer on the platform is to offer savers as good and affordable funds as possible, according to the statement.
The agreement went on to say that this did not mean just price, but the relationship between price and quality.
Teresa Carvalho, a Social Democrat member of the Pensions Group, said the agreement was a step closer to a sustainable pension system that would enable both current and future generations to receive adequate pensions.
“For me, it is important that you should not have to be a finance whizz to get a secure pension, and you should be able to feel secure that the money you have saved remains and grows while waiting for you to retire,” she said.
It had been hard to get an overview of, or control over the previous system, which had made it possible for unscrupulous fund managers to operate within it, Carvalho said.
The number of funds to be procured in each respective procurement is to be determined by the authority, the group has decided. It added that there should be enough to give savers a real freedom of choice, but that the procurement authority should also bear in mind that the funds and their managers had to be able to be reviewed on an ongoing basis, safely and efficiently, and at reasonable cost.
The degree of freedom of choice being offered to savers should be continuously measured and evaluated, according to the statement.
The agreement also states that for each procurement, the authority will formulate the mandatory requirements that must be met in order for a tender to be eligible for evaluation, saying this is to ensure that all funds offered meet high requirements for controllability and suitability.
The award criteria must be weighted, the group has decided, with those weights to be determined by the authority based on the circumstances of the individual procurement.
The agreement also states that, in addition to the procured funds, there must also be funds available on the fund marketplace – as there are on the current platform – which make it possible to adjust the risk level in AP7’s Såfa default option.
The new premium pension board authority is scheduled to start operating on 1 September 2021.