Sweden Scraps Two State Pension Funds to Cut Management Costs

Sweden proposed to eliminate two of its state pension funds and merge their assets with the remaining three to lower asset management costs and leave more money over for retirees.

The plan was agreed to by the coalition government and the Social Democrats, the biggest opposition party, Social Security Minister Ulf Kristersson said today at a press conference in Stockholm. The funds will also have one single principal, which will set targets and create the reference portfolio, he said.

The accord comes after years of debate on how to structure the pension assets. The government in 2011 asked a commission to present a proposal on measures to improve the conditions for management of the pension funds. At the time, the buffer funds amounted to about 870 billion kronor ($136 billion), or about 12 percent of total pension system assets. The majority on the commission in August 2012 said a single fund, such as Norway and Denmark have, would result in the best capital management.

The government and the Social Democrats will start talks with unions and employers’ organizations about the rules for retirement, including the possibility to extending the legal right to work until 69 years. Under current rules Swedes can retire at 61 and have the right to work until they are 67.

“The changes aim to more clearly tie the AP funds to the pension system and create a more cost-efficient management, reduce volatility in the pension development, create increased opportunities for a longer working life and more working hours and also cut costs in the premium pension system and improve the protection of inactive savers,” the government said in a statement handed out at the press conference.

Kristersson declined to comment on which of the AP1, AP2, AP3, AP4 and AP6 funds will be closed, saying only that one will be based in Gothenburg. Today, AP2 and AP6 are located in Gothenburg while the others are based in Stockholm. The closures don’t affect AP7, which is a government default fund for the premium pension system.

To contact the reporters on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net; Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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