Swedish Pension Funds Give Scathing Review of Proposed Reforms

The Swedish government has released a proposal to overhaul the nation’s retirement system, which includes condensing its four retirement systems into three, and streamlining their collective governance structure.

But top officials from the funds released a letter this week slamming the “ill-defined” proposal.

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The letter, published today in Swedish newspaper Dagens Nyheter, argued that the proposals were “ill-defined and bureaucratic”. The AP fund chiefs added that it heightened the risk of “short-term politically-motivated mismanagement” for the SEK 1.2 trillion ($142 billion) managed by the four funds.

It is the strongest rebuttal yet of the government’s proposals and the first time there has been a public, co-ordinated response from AP1, AP2, AP3, and AP4. Under the plans, the four will become three funds with a streamlined governance structure, while private equity specialist fund AP6 will be shut down completely.

But the fund chiefs warned that the proposals lacked a proper assessment of costs and other impacts on the existing portfolios. According to a third-party study commissioned by the four funds, even a 10-basis-point reduction in annual returns as a result of the overhaul would mean missing out on more than SEK 1 billion.

On top of this, the funds warned that costs could amount to “several billion kronor” over the two years of implementation. “This contrasts with the only expected saving stated in the proposal of around SEK 50 million annually. It will be several generations before these costs are recouped.”

In addition, a shortened time horizon due to closer involvement of politicians would “put an end” to long-term investments such as real estate and infrastructure, they argued.

The letter goes on to extensively describe other areas where the reforms could fall short. Read the letter here.
Photo credit: “Sweden-Flag-1562” by User:Odengatan, User:Kjoonlee – own work, based on work by User:Odengatan. Licensed under Public Domain via Wikimedia Commons