Sweden’s new fund selection agency is now open for business, and the first procurements of funds will begin during the second half of this year, according to its website.
Created by a pension law passed last December, the Swedish Fund Selection Agency is a new independent authority that will procure, manage and review eligible funds in the Swedish Premium Pension System. It will also oversee selecting funds for the $200 billion premium pension fund platform.
The Pension Group, which includes representatives from the political parties behind the current pension system, said it believes the Swedish government needs to take greater responsibility for the fund choice architecture and the structure of the premium pension system. The premium pension is a part of the general pension and is a form of social insurance designed to provide financial security during retirement. For individuals, the premium pension system involves depositing a payment equal to 2.5% of the pension base in a premium pension account with the Swedish Pensions Agency, which is the insurer for premium pensions.
The aim of the new independent fund selection agency is to ensure that the funds available in the premium pension provide high quality at a low cost. In accordance with the new law, the Swedish Fund Selection Agency intends to procure a wide selection of high-quality funds with different risk profiles. It will also be responsible for phasing out the current fund offering and transferring the premium pension fund agreements to the new fund market.
The current fund market is considered “application-based,” meaning that fund managers must apply to the Swedish Pensions Agency to provide a fund on the fund market. And if the fund manager meets the criteria, the fund management and the Swedish Pensions Agency enter into an agreement and make the fund eligible for the market. There are approximately 475 funds in the current offering, which collectively manage over $91 billion worth of Swedish premium pension capital.
However, the new fund management offering will be procured in line with special standards that will be governed by the new law. This means that various types of funds will be made available and that both the fund manager and the fund must meet certain conditions. The new funds will be assessed based on suitability, ability, quality, performance, sustainability and costs. The funds that best meet the evaluation criteria established in each procurement may sign fund agreements with the agency, which will evaluate and monitor the funds regularly. As a result, current fund categories, as well as the number of funds procured within each category, may vary and change over time.
The new law requires that the fund offering provide a variety of funds that are relevant and fit for the premium pension system, and that have a range of risk levels and investing orientations. The funds must also be efficient, long-term, manageable and of good quality. Mutual funds, fund companies, special funds or specific alternative investment funds can be considered for the premium pension fund platform. According to the agency, it will establish a more precise framework for suitability criteria for funds, categories and the qualitative criteria for procurements, among other things.