Swedish investors fail to pick up SEK2bn in rebates

About 90% of Swedes have no idea of the levels of rebates applied to funds in the country’s Premium Pension system (PPM), according to research published by the Swedish Investment Fund Association (Fondbolagens förening)

The rebates average about half the management fees. Investors will soon receive the rebates applied in respect of 2011 – or about SEK2bn (€226m) the Association said.

Gross fees for PPM funds averaged 0.85% in 2011. Investors are being rebated about 0.55%, which leaves an average net fee of 0.3%.

When a fund’s returns are illustrated the fees are always deducted. However, at the Swedish Pensions Agency’s fund supermarket returns are illustrated without the rebates. That means returns are actually higher than suggested by the supermarket.

That means comparisons of returns between different funds are not being correctly shown. “The Agency has earlier notified that it is investigating how information to investors can be improved,” the Investment Fund Association said.

“The rebate is of great importance for investors in PPM. That is why it would be good if more than one in ten people knew that they on average get back more than half the management fee,” said the Association’s financial savings economist Hanna Helgesson.

“Investors obtain the rebate and get the correct information when it comes to how much money is in their accounts. But, comparisons between funds are not fair given the lack of consideration of rebates in the Agency’s supermarket.”

All PPM funds offer rebates if the fees are higher than 0.15% for equity funds, and 0.1% for bond funds, the Association said.

The size of the rebate is possible because the providers in this case only have one large customer, which is the Pensions Agency. The Agency is responsible for information to long term savers, as well as the majority of the administration.

The size of the rebate is also affected by the size of the gross fee for a fund and how much is being saved into each of the respective providers’ funds via the PPM system. The more in demand a fund is the greater the rebate.

This means that despite the average rebate level of 0.55% there can be big differences between different funds and types of funds. Popular emerging market funds can, via PPM, have offered returns that are 1.5% higher than what is actually being illustrated via the Pension Agency’s supermarket.

However, the rebate is also important for lower profile funds, as it means they can, in effect, offer equally low fees as those from the country’s default buffer funds, which are put forward by the state for long term savers via the tiered retirement savings system.


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