Pensions troubleshooter Mats Langensjö has weighed into the Sweden's heated debate on the future of its prized Premium Pension System (PPM), saying the current reform needs to centre on bolstering the governance of private pension providers in the system rather than forcing billions of kroner in individual savings into state hands.
"Pension providers should take more responsibility for how this money is invested, by creating professional portfolios that are relevant for retirement saving," Langensjö told AMWatch.
Several proposals are now on the table for legal change to the PPM, whose need for reform became politically urgent in the last year due to scandals over fraud by some providers.
Introduced in 1999, the defined contribution (DC) premium pension is part of the pillar I mandatory state public pension system, but lets Swedes choose how 2.5 percent of their pensionable earnings is invested.
Pensions at a Crossroads
State pension fund AP7 acts as the default provider for those who do not make an active choice from the 800-odd private-sector pension providers registered within the PPM fund market (fondtorget).
In a recent paper on the future of DC pensions in Sweden called "Pensions at a Crossroads" which was commissioned by pensions provider Skandia, Langensjö makes general recommendations for DC as well as suggestions specific to the PPM.
Pension providers of DC products have a major responsibility to help the individual make the right decisions, and that the number of choices given to the public must be reduced, he says.
Addressing the issue of the PPM, he says: "The individual does not have the ability or the interest to choose from a wealth of funds."
The fund market should be sized down to only seven options for people to choose between, and these should be "procured and quality-assured portfolios relevant for long-term pension funding", he says, with AP7's balance Såfa option remaining the default for those not making a choice.
Langensjö opposes one of the main proposals for change due to be considered by the cross-party Pensions Group, that AP7 should increase its role in the PPM, taking on the pension savings already managed by private providers when people fail to make an active choice after seven years.
Proposal that should die
The Premium Pensions Committee, led by former director in the finance ministry Patric Thomsson, made the proposal in September and estimated it would mean a shift of up to SEK 380 billion of savings assets to AP7 – more than doubling the fund's current assets under management.
"This is the proposal that I hope will die," says Langensjö.
"The need is for more checks within the system, and you cannot at the same time have AP7 – which is a state authority – as one of the dominant players," he says, arguing the state should only be involved as a last resort for those who really do not care about where their savings are managed.
Drafted in by the government at the beginning of June, Swedish pensions expert Stefan Lundbergh, who is a director of the consultancy Cardano in the Netherlands, is currently finishing a review with the aim to present a map of options to help the Pensions Group in its deliberations this autumn.
His review will be presented to the Pensions Group at the end of August, capturing all the key ideas behind most of the proposals which have been put forward as well as some that have not.
"The assignment, which is very close to being finalised, was to provide a map of alternatives of how we could look at the premium pension the system and improve it instead of just patching it."
"The fraud problem is being addressed through the 30-point plan from the Premium Pensions Agency and outside the scope of the review. The scope is to look further ahead," says Lundbergh, who is also a supervisory board member at the fourth AP pensions buffer fund (AP4).
Lundbergh believes the map will give the politicians a good basis for the discussing the direction of future reforms.
"I have only drawn up a range of solutions from the very paternalistic to the very libertarian and in different dimensions, but in the end it is politicians in the Pension Group that must come to a unanimous agreement," he says.