Sweden needs to reduce its number of state pension funds to lower costs and improve returns on about 870 billion kronor ($131 billion) in assets being managed for the nation’s retirees, a government-appointed committee said.
The group, appointed last year by Swedish Financial Markets Minister Peter Norman, recommended the number of AP funds be cut to three from five, according to a report released to Tuesday in Stockholm. Also, a new agency should be created to oversee the funds, according to the report.
The parallel structures, poor governance and current investment rules have reduced annual returns by at least 1%, or 9 billion kronor ($1.35 billion), and added about 250 million kronor to costs. The committee also presented the option of merging the funds into one.
The five buffer funds — AP1, AP2, AP3, AP4 and AP6 — manage the 870 billion kronor and are tapped when pension payments exceed tax deposits. The government in May criticized the funds, which date back to 2001, for not having reached their targets and called the performance over the past five years of at least three “unsatisfactory.”
Pension payments exceeded tax income set aside for retirees for a third consecutive year in 2011, while the funds’ annual return averaged 3.3%, the government said.
The anticipated report had stirred up a debate in Sweden and prompted economists to warn of dangers of political meddling in the nation’s pension assets.
“If there is just one big state fund the concentration of power in the Swedish financial markets will become colossally big,” said Assar Lindbeck, a professor of economics at Stockholm University, in a phone interview before the recommendation. “If there is one big player on the market who can buy shares and that way gain influence at companies, then politicians won’t be able to resist the temptation to start meddling.”
