SWEDEN - An increasing use of financial advisers for fund selection in the Swedish premium pension plan could pose problems for the system as it generates potential bulk trading volumes.

Under the complementary first-pillar defined contribution plan managed by the Premium Pension Authority PPM, Swedes are required to choose a portfolio from a range of over 700 funds.

Tthe number of people using professional advisers in fund selection and manage their PPM portfolio for them has recently increased.

"If 5.6 million pension savers are active but active in a random fashion there will be no peaks and no valleys in the trading activity," Andreas Vedung, analyst at the PPM, told IPE.

"We want the people to be active in their fund choices. But if a lot of PPM asset managers start making decisions for a large number of pension savers and buy or sell funds on a large scale on one day that would put pressure on our system. We have technical concerns regarding our system and fund managers and we also have concerns about the credit facility," he added.

The PPM has an arrangement with the Swedish National Debt office so it can buy shares before receiving money from the shares it has sold, in order to execute transactions faster.

"If these PPM asset managers start transacting in bulk, this credit facility might reach its limit and we might have to increase it," Vedung explained.

"I don't think the PPM really had envisioned this use of asset managers by the people. I think it is something spontaneous that has happened in the market because of PPM's existence. It is not that complex to make a decision," Vedung noted.

AMF's public pensions adviser Anna Allerstrand stated in a press release: "I can understand it can be attractive to transfer the responsibility for the premium pension to someone else.

"But the premium pension is part of the future salary. Therefore one should be careful before transferring the responsibility for the administration of the premium pension to others," she added.

She reminded people the 'orange envelope' sent out annually to all premium pension savers contains information on the benefit level and fund developments.

Furthermore, AMF noted people should choose carefully if they opt for a professional adviser, comparing offers, checking prices and look into the risk management strategies offered.

The PPM itself offers an online guide, the so-called 'PPM-Lotsen', which helps decide on a portfolio of funds based on their age, risk-profile and the income of that person. The funds are divided into various categories such as age-specific funds, equity funds (including specialist regions or fields) or bond funds.

Approximately 5.6 million people from a total population of 9.1 million in Sweden, are saving money in the premium pension plan which currently has a total of SEK290bn (€31bn).

Around 40% of the savers have yet to make a decision on a particular fund so their money has gone into the SEK87bn Premiesparfonden managed by AP7.

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