There are also several smaller issues at the European level, for example those relating to cross-border activities and tax issues. But Solvency II is by far the most important.

NRPN: What other regulatory problems are Swedish investors facing?

AG: The Swedish government’s ban on switching from one pension fund to another, which was temporarily imposed in the wake of the EU ruling against Denmark, has caused trouble for some of our members. The court ruled against having different taxation systems for domestic and foreign pension funds. But the new proposed legislation is acceptable and will not lead to any major changes.

However, bureaucracy will not solve the problem and there will always be ways around it. The tax on pensions, which is in fact a tax on wealth, has been a very interesting source of income for the ministry of finance and I think the government is worrried about losing this income. The effects will in time become much more extensive as more people move around in Europe and want, of course, to be able to take their pensions with them.

NRPN: How are funds affected by the Swedish Financial Supervisory Authority’s traffic light model?

AG: The traffic light model has caused trouble in the sense that we ended up with a framework that is very rigid and has the same rules for all, i.e. insurance companies and pension funds. The main problem has been matching, where returns should be at the same level as pension payments. Although the FI was relatively open for comments during the different stages when the model was being built up, my opinion is that it does not take into account the reality of life for pension funds. While insurance companies have more difficulties predicting cash flows, pension funds, on the other hand, can make solid predictions, since they know when people will retire. I therefore believe that the traffic light model could have been refined and that it could have been possible to have a solvency system that took into account easily predictable factors such as pension payments.

NRPN: Which asset classes are your members interested in?

AG: Today, there are plenty of interesting investment alternatives, but also plenty of room for mistakes.

There has certainly been an increase in popularity for risk capital and hedge funds. With such a wide range of asset classes, it is now easier to tailor a portfolio in a good way and to take liquidity flows and risk levels into account. It has definitely been something positive, but my concern is that that there has not always been sufficient information about risk levels and that perhaps investors are not always aware of the risks they are taking, which has been demonstrated by the latest turbulence.

NRPN: How has the ITP-tender affected the Swedish pension fund industry?

AG: The ITP agreement was the last shift from defined benefit to defined contribution.
The tender process managed to lower prices in the market, which is excellent. But it has also put many pension funds, in particular the smaller funds, in a difficult situation. Even for those with a good reputation among its members, the pressure from the big companies will be tough. In time, several of the smaller funds will have to act and they have two main options: either merging with other funds or outsourcing the administration.

The ITP tender has also been criticised for partiality, but the five chosen products for each category were the best based on the selected criteria. Some of the critique seems to have come from the losers in the tender process, who were of course upset. It is hard to judge how accurate any of the criticism is, although I believe there must be better ways of dealing with any discontent than blaming people for having a conflict of interest.

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