SWEDEN - The Swedish Premium Pension Authority (PPM) is considering charging fund managers to join the list of funds selected from by individuals investing in the national pension fund.
Ole Settergren, director of the department of pensions at the Swedish Social Insurance Agency, told delegates at last week's IMN Scandinavian Institutional Investors Summit just 30 funds have closed down since the system began in 2000, compared with the 250 new funds which have joined.
The PPM system currently offers members a choice of around 800 funds, out of which members can choose up to five for their portfolio, however while 70% of the fund capital is actively invested, around 30% is in the low-risk default fund which is 90% invested in global equities.
Even though some of the funds are sitting empty it is considered "good marketing for the funds to be in the catalogue", according to Settergren, particularly as there is no cost, but they must accept the PPM's discount demands on management fees and comply with EU legislation.
More importantly, Settergren said the PPM "does have the opportunity to start charging funds to be in the system. They haven't done that yet, but they are considering it".
An OECD study last year indicated approximately 90% of the six million people investing in the PPM defined contribution scheme had left their money in the default fund, rather than actively chosen from 780 funds. (See earlier IPE story: DC members stunned by too much choice - research)
Despite having a choice of around 800 funds, Settergren has now revealed between 2000 and 2007 the number of new savers actively choosing funds in the PPM system fell from 67% to 2%, although he warned not to "make the mistake of thinking only 2% choose", as overall around 50% of members make a choice, which represents 70% of the capital.
As a result, Peter Lindblad, vice chairman of the European Federation for Retirement Provision (EFRP), highlighted the importance of the default fund and suggested it should be renamed as the "ready-made or main alternative fund" with the opportunity to opt-out and choose specific investments.
He pointed out "as many as 70% of members have ended up in the default", with a similar pattern in other parts of the labour market, where between 70-80% of members either do not make an active choice or actively choose the default.
Lindblad warned it is therefore "important to get the default fund right", although he noted managing the default fund is a very attractive proposition for a provider as it gives them a very large market share.
In addition, Settergren suggested in his personal view, the "rational choice is not to choose" despite the idea that to be a good citizen you must choose funds even if you don't know why.
He said: "The fee on the default fund is almost the lowest, and there is no reason to see why [members] will make a better active choice. But it is politically incorrect to give them this choice."
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