A proposal to merge the four Swedish AP buffer funds has been quashed by the country's Pension Group task force.
“Unfortunately, (the Pension Group) could not reach a consensus on the issue of merging the funds,” said Bettina Kashefi, state secretary to Cristina Husmark Pehrsson, minister for Social Security. “The issue of consolidation is not on the agenda at the moment.”
Ms. Pehrsson chairs the Pension Group, which has veto authority on major changes to the pension system to ensure consensus is reached among all political parties in Sweden.
The decision was “not what we had expected,” as the proposal was expected to reduce costs of the pension system's multiple administrations, Ms. Kashefi said.
A report last November suggested consolidating the system's four main funds — AP Fonden 1, AP Fonden 3 and AP Fonden 4, all of Stockholm, and AP Fonden 2, Goteborg — would save approximately 1 billion Swedish kronor ($128 million) a year. The report was commissioned by a standing committee of the Swedish Ministry of Finance known by its Swedish acronym, ESO.
Instead, now that the merger plan has been rejected, the government will look for other ways to cut costs at the four funds, which have a combined 808.8 billion Swedish kronor in assets.
In its annual review of the funds released May 27, the Ministry of Finance noted officials at the four funds are working to increase cooperation, especially regarding administration, which should lower costs. In the review, which was delivered to the Swedish parliament, the Ministry of Finance asked that the AP funds report on their cooperative activities as soon as possible.
The November ESO report also called for addressing governance issues, such as who should be responsible for appointing members of the AP funds' trustee boards, and replacing quantitative investment restrictions with a “prudent person” rule, which would let fund executives 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.
Malin Bjorkmo, author of the ESO report and director of the department for insurance and investment funds at the Swedish regulator Financial Supervisory Authority, said she did “not think there is any work going on right now on the future structure or a change in governance of the (AP) funds,” noting that the political climate in Sweden is difficult; parliamentary elections will be held in September. Ms. Bjorkmo does not expect any major work to be done on pension reforms before the election. When Ms. Bjorkmo wrote the report, she was an independent pension consultant.
Ms. Kashefi said she expects “we will have a work plan” in place before the elections, but that the agenda is set by the Ministry of Finance.
In her report, Ms. Bjorkmo criticized the four funds for being too similar in their investment approaches and too easily swayed by government. That, she said, looks to be changing.
“Now I think they are trying to think more on their own,” she said, pointing to how the funds voted this spring at corporate annual general meetings.
“They behaved more independently from the government,” she said. “That, of course, is a good thing.”