New guidance for long term savers in Sweden suggests that lower risk, lower cost funds are the ones that consumers should consider investing directly into, but that for higher risk funds, such as equity funds, savers should consider wrappers such as the Investeringssparkonto (ISK; investment savings account).
Fiscal rules, rather than returns, feature heavily in the Agency’s suggestions of which form of access to funds to consider.
Benefits of direct ownership of funds apart from being able to select funds offering low fees include the ability to attend company general meetings and vote according to holdings, as well as the possibility of offsetting tax against capital losses. Elsewise, capital gains tax at the point of sale of holdings is 30%, and an annual flat tax of 0.12% is owed against the value of the fund at the start of each year.
Use of the ISK account regime is also subject to a flat tax, but this may therefore be a better option for fund investors who are considering higher risk investments that lead to higher returns, the Agency notes. But this also means that it may be a less beneficial choice for those intending to invest in lower risk funds. And there is no possibility of offsetting tax against losses made within an ISK account.
Use of insurance based savings solutions, which also offer access to collective investments, is another area outlined by the Agency. Here, it notes that charges may be higher, especially as the provider may add own charges on top of management fees at the fund level. Like the ISK, investors in funds through this route cannot offset losses against tax owed. Unlike the ISK regime, users of insurance based products may be locked in for a minimum amount of time, which could be disadvantageous.
Overall, the guidance highlights the differences in pension income that could be expected depending on what type of savings are used – such as using deposits versus using a workplace pension versus investing in funds – and illustrates the impact of both time and level of savings on the pension income that could be expected in future.
The full report is available here (in Swedish): https://www.pensionsmyndigheten.se/content/dam/pensionsmyndigheten/blanketter—broschyrer—faktablad/publikationer/rapporter/2018/PID146682_v2.0%20Eget%20sparande%20till%20pension.pdf