Sweden Abandons Controversial Pension Reform Plans

Kerstin Hessius, CEO, AP3Leaders of Sweden’s pension system have praised “a victory for common sense” after the government abandoned plans to shut two funds and overhaul its current structure.

The government had proposed to shut one of Sweden’s four main AP funds, which invest capital to pay the state pension, as well as private equity specialist AP6.

It had also proposed to introduce a reference portfolio for benchmarking and asset allocation, and a reporting system which would have brought the five funds’ total SEK 1.2 trillion ($144 billion) of assets closer to government control.

However, following a cross-party meeting to discuss the changes, the country’s government yesterday shelved the proposals, and agreed that no funds would be shut. It followed near-universal criticism of the plans from employers, labor unions, and pension groups, as well as the AP funds themselves.

Speaking to Chief Investment Officer, Kerstin Hessius, CEO of AP3, said the proposal was “a compromise of a compromise of a compromise. It was not a good proposal. This is a victory for common sense.”

“If it ain’t broke don’t fix it—that was the main response [to the consultation],” Hessius added. “No one from the politicians could really defend the proposal; no one took the ball on the other side.”

AP2 CEO Eva Halvarsson agreed that the overwhelming response to the government’s consultation had been “very clear”.

“The major part was that they couldn’t see the need for change, and they were opposed to the proposal to make the funds closer to government.”

Halvarsson added that the debate had allowed the AP funds’ staff to demonstrate that the current structure performs well and is cost efficient—two key criticisms of the system at the start of the debate.

Per Bolund, minister for financial markets and consumer affairs, said in a statement that there were “no plans for further negotiations” over AP fund reform by the six-party pension group—and criticised Swedish conservatives for the failure to agree the proposals.

“The multi-partisan pension group was formed to ensure stability in the pension system,” Bolund said. “I conclude, after the events over the last few weeks, that political prestige from the Swedish conservative party has triumphed over consideration for future and current pensioners.”

Investment limits

Despite the relief among the AP funds that they can go back to “business as usual”, AP2’s Halvarsson expressed disappointment that a proposed “modernization” of the AP funds’ investment rules had also been shelved.

“The main thing that ought to be done is a change to investment regulations,” Halvarsson said. “As it is, we are limited to 5% in unlisted assets—the system would benefit from lifting this limit. We will continue to talk to government about this.”

But Hessius at AP3 said her fund “can live with the current investment rules, even if they could be a bit better.”

At an early stage of the AP funds’ review, which began in 2011, AP3 requested “minor changes” to investment rules to improve flexibility, Hessius said. However, the CEO said there was unlikely to be appetite in government to discuss such an issue: “It is better to let it be for a while.”

“Most importantly for the future is that if they do suggest further changes there needs to be a better process,” Hessius concluded. “If we are involved, we can help politicians come to decisions that are best for the pension system.”

Per Bolund’s statement in full

“I can confirm that the proposed reforms of the Swedish AP funds have been postponed indefinitely due to a failure to reach political consensus in the six-party pension group (pensionsgruppen).

“In June 2015, the six parties agreed to refer reformed and modernized principles for the AP funds for consideration. Six months later, despite a great willingness from many of the parties and the government to reach a compromise, there is no longer consensus for the reforms.

“The multi-partisan pension group was formed to ensure stability in the pension system. I conclude, after the events over the last few weeks that political prestige, from the Swedish conservative party (Moderaterna), has triumphed over consideration for future and current pensioners.

“At this time there are no plans for further negotiations within the pension group with regards to the reform of the AP funds.”

Related: Major Shake Up for Sweden’s Pension System & The Unknown