No change in law on funds switching in Swedish pension system
Sweden’s government today announced it would not seek to change the law to stop mass fund switching within the
Premium Pension system (PPM).
Instead, the task has been given to the Swedish Pensions Agency (Pensionsmyndigheten) to implement IT measures to stop the switching.
The government has also given the Agency the task of evaluating which other measures should be implemented, for example adjusting the Agency’s rebate model for fund of funds solutions.
Currently the system is structured so that a fund of funds must give rebates both on the indiviudal funds in the portfolio, and on the actual fund of funds itself. This has made it unprofitable to place funds of funds in the PPM system, despite the product being an “excellent alternative” to the services offered by so-called management firms responsible for the ongoing mass switching problem.
The Agency is to draw up a schedule for implementing the changes. All changes are to be implemented following discussions with the Swedish Financial Supervisory Authority (Finansinspektionen) and other affected parties.
The PPM is part of the public pension system in Sweden, with 2.5% of earnings earmarked to be paid into this type of long term saving through which savers themselves can decide which funds in which to invest.
Many savers have sought the services of ‘advisers’ or ‘managers’ to assist them in making their fund choices. However, an industry has developed whereby these services companies can use savers’ own PIN codes for accessing the Pensions Agency’s funds platform, at which point they increasingly make use of automated systems, or online ‘robots’, to effect mass switching. At times this could see tens of thousands of fund investors switched in an out of indiviudal funds on the platform.
The Agency and the Swedish Investment Fund Association have both complained that this mass switching poses a threat to the viability of the entire Agency platform, and has resulted in fund providers threatening to withdraw their products from the platform unless the government acted to restrict the activites of the ‘advisers’ or ‘managers’ concerned.