SWEDEN - AP7, the Swedish national buffer fund with a mandate to manage assets within the premium pension system, saw record returns for both of its portfolios in 2009, the last year it operated according to its old model.

AP7 had SEK 92.2bn (€9.48bn) in assets managed in the Premium Savings Fund which returned 35.1%, while the Premium Choice Fund returned 46.1%. In particular, emerging markets equities soared with a return of 89.3%.

In December 2009, AP7 finished its traditional active asset management and took the final steps towards alpha-beta separation. Alpha management will now also be implemented in Japan and Asia.

Last year, the Swedish Parliament, Riksdagen, took the decision to change the AP7 model in order to increase freedom of choice and fairness within the system. For AP7 this means that the Premium Savings Fund will be scrapped and replaced with a new life-cycle alternative.

This means that members in the national defined contribution (DC) premium pension system who do not make an active choice will be placed in funds - so called Såfa - where the risk-level is related to their age and the risk level to the entire old age pension. This means that the equity proportion of one's savings will be reduced the older one gets.

Those who have previously made active choices will now be able to choose AP7 life-cycle products. In effect the government, through AP7, will offer ready-made premium pension portfolios with varied risk levels. (See earlier IPE article: AP7 to launch new products following overhaul)

The government fund portfolios will require a certain level of engagement as the member has to choose the risk-level but it does not require any knowledge of portfolio construction or quality assessment of individual funds.

The building blocks in the new system are the AP7 Equity fund and AP7 Fixed Income fund, on which all other products will be based. By combining these building blocks in various ways, three portfolios with different risk-levels will be created: AP7 Cautious, AP7 Balanced and AP7 Aggressive. The changes will be implemented in May.

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