Proposed reforms to overhaul Sweden's public pension funds would put an end to long-term investment in certain sectors and result in lower pension benefits, warned the chairmen and CEOs of the country's four largest AP funds in an open letter to the government.
AP1, AP3, and AP4, Stockholm; and AP2, Gothenburg, have a combined 1.2 trillion Swedish kronor ($146 billion) in assets. They collectively warned in a letter published in a Swedish newspaper that proposals to merge certain pension funds and close others completely “will make the system worse in a number of respects.”
The letter outlined weaknesses that the pension fund executives see in the proposed reforms, including the question of sufficient independence from the government of a new National Pension Fund Board, which would oversee important issues relating to the pension funds.
The executives said the changes would restrict the pension funds' ability to invest, as “they would be governed by a reference portfolio and a cost cap determined by” the board and the government. The plan does not offer economies of scale for investment in unlisted assets.
Further, the letter said the proposal lacks two key elements: “an impact analysis and a calculation of what these proposed extensive reforms will cost.”
Executives go on to explain other consequences of the changes, including lower pension benefits because there will be little opportunity to generate higher returns; less scope for professional, strategic and proactive money management; and less opportunity to act as a responsible shareholder. The proposal also “increases the risk of short-term political micromanagement” and will lead to high reorganization costs.
“Those of us who have been tasked with managing the AP funds' capital responsibly for the benefit of current and future pensioners, with the pension system facing significant challenges over the next 15 to 20 years, believe the proposed new rules for the AP funds will not lead to better pensions, quite the contrary,” the letter said. “This proposal, therefore, cannot form the basis for a reform of the AP funds,” the letter concluded.
It is signed by Urban Karlstrom, chairman, and Johan Magnusson, CEO, AP1; Marie Arwidson, chairwoman, and Eva Halvarsson, CEO, AP2; Par Nuder, chairman, and Kerstin Hessius, CEO, AP3; and Monica Caneman, chairwoman, and Mats Andersson, CEO, AP4.
