SWEDEN - The Swedish government is expected to set up a new committee which will examine the premium pensions system and recommend possible changes to the existing structure.
Critics of the premium pensions system have argued that the 655 funds that savers choose from in the National Pension System confuses and overwhelms them. This results in a majority of them abdicating responsibility and opting for the default fund, AP7.
Last year, AP7 received Skr6.7bn (e727m), of which Skr149m came from first time choosers. Of these 86% (with 84% of the total invested capital) refrained from making an active choice.
The new committee, which could be set up in spring, is expected to look at two broad issues - are savers making a rational decision when investing their money and is the cost of the existing premium pensions system too high.
Other technical issues may also be examined. AP7 has been asking the government for a change in legislation so that the fund can offer life cycle products. The fund’s 90% allocation to equities is also expected to be studied. The committee may also review AP6’s mandate which currently only includes domestic private equity.
The Premium Pension Authority, the Premier pensionsmyndigheten (PPM) has recommended abolishing the 665 funds and in its place having the PPM autonomously mandate a far smaller number of managers to run the e94bn in the system.
Hans Jacobson, PPM director-general said: “The reason people want to reduce the number of funds is that this would lower the cost of fund management as there would be fewer managers. Many people are overwhelmed when they get a catalogue of 655 funds, and we are trying to get people onto a step by step method. But most of them still won’t be bothered”
Elisabeth Vaas, benefit practice leader at Watson Wyatt, Stockholm said: “Its just not practical for people to grasp the idea of choosing from a 600 plus funds. The interest in the first year was high but after that, apathy has set in and most of the money has gone into the AP7.”
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