The Swedish government might consider merging the assets of the 745 billion Swedish kroner ($105 billion) AP funds as part of an official review expected to kick off within the next 90 days, said Bettina Kashefi, state secretary for the ministry of social security.
The Pension Group, a seven-member task force led by Sweden's minister of social security, needs to agree to the review of administrative costs and poor returns and determine how it might proceed, Ms. Kashefi said.
Debate over a possible merger of the funds spiked after a recent report suggested merging the system's four main funds — AP Fonden 1, AP Fonden 3 and AP Fonden 4, all of Stockholm, and AP Fonden 2, Goteborg — into a single fund. The report's author, Malin Bjorkmo, also recommended closing AP Fonden 6, another Goteborg-based fund with 16.4 billion kroner in mainly Swedish private equity. The funds were formed as a buffer to supply 10% of benefits expected to arise in the country's pay-as-you-go first-pillar system as baby boomers retire.
Since the report was made public Nov. 30, the proposal to merge the funds has picked up some notable allies, including Sweden's finance and social security ministers and two former finance ministry officials who oversaw pension reforms a decade ago.
A consolidation could mean approximately 1 billion kroner a year in revenue to the system, from a combination of reduced costs and improved returns, according to the report, commissioned by a standing committee of the Ministry of Finance known by its Swedish acronym, ESO.
The report also called for replacing quantitative investment restrictions with a “prudent person” rule, allowing fund executives to raise allocations to private equity from the current 5% cap for the four main AP funds and to make new investments in commodities and infrastructure. Other existing requirements include a minimum 30% allocation to bonds and at least a 10% allocation to external managers.
Opponents of the merger dispute the report's estimates on cost savings and increased returns. Kerstin Hessius, CEO of AP3, criticized the report for being “very hypothetical.”
“The poor part of ESO's report is the lack of analysis of the revenue side,” she said. “Without that, you cannot draw the conclusion that you will save” by going to a single fund.
And even proponents have doubts such a merger is viable politically. Ms. Bjorkmo said one likely compromise would be reducing the four main funds to two or three funds. “There are always a lot of in-between solutions,” she said.
Ms. Kashefi, speaking on behalf of Minister of Social Security Cristina Husmark Pehrsson, who chairs the Pension Group, said “she can see there are financial advantages to having one (fund) instead of four.”