Rebates generated through Sweden’s Premium Pension system will be paid out on 5 May, but only one in 10 users of the system recognise the scale and advantage that the rebates bring them, according to the Swedish Investment Fund Association (Fondbolagens förening).
The size of the Premium Pension platform – which allows long term savers to self-select the funds into which part of their mandated pension savings are directed – means that the rebates are significant in proportion to standard fees applied by management groups whose products are available. On average, PPM users only pay a third of the initially stated management fees, with rebates repaid annually on a particular date. The rebates from 2017 that will be paid on 5 May are equal to some SEK7bn (€662m).
Unfortunately, as the Association points out, hardly anybody knows about the rebate system, and of those who do, there is a ratio of double the men to women who know about it. The latest survey of user awareness of the rebates conducted by TNS Sifa Prospero on behalf of the Association, found the figures had not budged since similar surveys were conducted in 2014 and 2016. Some 92% of female users of the PPM platform are unaware of the rebate system.
The Association said that educating users about the rebate was very important for ensuring that they maximised the associated benefits. Given that average fees on the PPM platform start at 0.66%, the rebate means that investors on average only pay 0.22%. With the average rebate hovering around 0.5% annually, that additional return over 20 years means that the average person’s pension could be 10% higher, and over 30 years it could 16% higher, according to the Association’s figures. Many of the biggest funds available on the platform offer even lower fees after the rebate.
Source: Swedish Investment Fund Association; net fees after rebate in right hand column
The rules of the PPM platform mean that any equity and balanced funds with fees higher than 0.15%, and fixed income funds with fees higher than 0.1% offer rebates, the Association explains. The size of the rebate is determined by the fund’s popularity in the system and it’s normal fee level. A bigger fund with higher ordinary fees offers a larger rebate. There is also a ceiling for fund fees, which means that no fund costs more than 0.89% after the rebate is applied. The rebates are made possible because the fund providers in the PPM system have just one customer – the Swedish Pensions Agency (Pensionsmyndigheten), which in turn is responsible for all contacts with long term savers and the administration thereof.