Concerns over tighter monetary policcy

In 2016 Sweden’s national pension funds reported aggregate earnings of SKr 118 billion, corresponding to an average return of 9.7%.

After five years of exceptional growth, which has primarily been fuelled by expansionary monetary policy, there are now indications that monetary policy will tighten.

Kerstin Hessius, the CEO of the Third Swedish pension fund (AP3), has expressed concerns over what will happen when Sweden’s central bank, the Riksbank, starts raising interest rates. She wonders if the adjustment will be dramatic, or orderly, saying that in the worst case scenario it will lead to significant “destruction of capital”.

Calls for better protection

The number of funds in Sweden’s pension system will be reduced by between 200 and 400, if a Swedish Pensions Agency (Pensionsmyndigheten) proposal is approved by the parliamentary pension group, reports Dagens Nyheter.

Concerns over the recent scandals with Falcon Funds and Allra have led the Pensions Agency to propose that a company must be able to prove that it has had assets of at least 100 million kronor under management for three years before it will be accepted on its platform. During the second half of last year just four of 31 new funds met such a requirement.

Another proposal is that a fund must be able to show it has been trading on other regulated markets during a set number of years, while a third is that a cap will be set on the level of assets each fund has in the pension system.

The parliamentary group is expected to make a decision by the summer.

Green transition

Financial Markets Minister Per Bolund is convinced the markets will revalue fossil fuel assets. He believes environmentally unsustainable assets may well suffer from unanticipated or premature write offs, downward revaluations or be converted into liabilities, which is why the government is counting on the national pension funds to reduce their risk in fossil fuel assets.

“We expect the pension funds to lead the financial markets’ green transition,” says Per Bolund, rejecting suggestions that the government is exercising too much control over the funds.

Liberals stop pension funds’ reform

After the Social Democratic conference in May this year, Prime Minister Stefan Löfven said he was open to the idea of using Sweden’s national AP pension funds to fund infrastructure projects such as the North Bothnia railway line.

While the North Bothnia line may well be a stated preference project, it is not one that will generate the necessary return for the pension funds. The stated aim of the funds is in fact to generate the best possible return over time for Sweden’s pensioner, not to realise political projects, write Liberal leader Jan Björklund and Mats Persson, Liberal member of the Riksdag’s pensions’ group.

This is why the Liberal Party will use their veto to stop a recent proposal to set up a new authority to manage the pension funds, which together have assets of more than SKr 1,000 billion.