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THE SWEDEISH PREMIUM PENSION SYSTEM Workshop on Private Pension Provisions, Tallin 6-7 September 2007 Daniel Barr, Chief Economist Premium Pension Authority
THE SWEDEISH PREMIUM PENSION SYSTEM
Workshop on Private Pension Provisions,Tallin 6-7 September 2007
Daniel Barr,
Chief Economist Premium Pension Authority
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DISPOSITION• From DB-land to DC-country
• Activity
• Performance
• Annuities
• Costs
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FROM DB TO DC
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THE SWEDISH PENSION SYSTEM
First Pillar Second Pillar Third Pillar
Tax efficient individual pensions (incl. mutual funds, unit linked)
Occupational schemes (90% coverage, to a larger extent DC)
Income Pension (PAYG)
Premium Pension(DC, funded)
GuaranteedPension(filling up) Members
choice
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PREMIUM PENSION
• Individuals can choose maximum 5 mutual funds
• Default fund invest on behalf of passive individuals
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”The Clearinghouse Model”Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund
Fund manager
Fund manager
Fund manager
PPM
Approx. 5,7 million pension savers
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OPEN ARCHITECTURE
• Meet the requirements in the UCITS-directive (85/611/EEG)
767 funds 84 fund companies
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ACTIVITY
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NEW COMERS
Proportion of new members that made an active choice
Year 2000 2001 2002 2003 2004 2005 2006 2007*
Active 67,0% 27,6 % 14,1% 8,3% 9,4 % 8,0% 7,4 % 1,7%
* Delayd information campaign
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Active members share stabilise
50%
55%
60%
65%
70%
75%
2000 2001 2002 2003 2004 2005 2006
Individuals Capital
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FUND SWITCHES
0
200 000
400 000
600 000
800 000
1 000 000
1 200 000
1 400 000
1 600 000
1 800 000
2 000 000
2000 2001 2002 2003 2004 2005 2006
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Top ten funds 2006 (2000)
Fund Market Value Market Share
1 (1) Premiesparfonden (Default) 78 857 410 995 29,5%
2 (5) AMF Pensions Aktiefond - Sverige 9 210 050 130 3,4%
3 (3) AMF Pensions Aktiefond - Världen 7 905 309 778 3,0%
4 (6) Didner & Gerge Aktiefond 7 060 960 558 2,6%
5 (4) Robur Aktiefond Pension 7 032 194 890 2,6%
6 (9) SPP Generation 60-tal 5 072 854 562 1,9%
7 (8) SPP Generation 50-tal 4 675 274 882 1,7%
8 (75) HQ Rysslandsfond 4 098 189 396 1,5%
9 (2) Robur Contura 3 929 719 442 1,5%
10 (11) AMF Pensions Balansfond 3 549 845 638 1,3%
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VALSITUATIONEN "I have enough knowledge to manage my premium pension"(18-62 years old)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2005
2004
2003
(5) Fully agree
(4)
(3)
Dont know
(2)
(1) Fully disagree
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PERFORMANCE
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Asset AllocationFixed
Income9%
Domestic Equity32%
Global Equity59%
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-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
00
-12
-13
01
-02
-28
01
-05
-31
01
-08
-31
01
-11
-30
02
-02
-28
02
-05
-31
02
-08
-31
02
-11
-30
03
-02
-28
03
-05
-31
03
-08
-31
03
-11
-30
04
-02
-29
04
-05
-31
04
-08
-31
04
-11
-30
05
-02
-28
05
-05
-31
05
-08
-31
05
-11
-30
05
-07
-31
05
-10
-31
06
-01
-31
06
-04
-30
06
-07
-31
06
-10
-31
%
Premiepensions-systemet
Inkomstindex
Performance since 1995
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Dispersion
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Less than 0%
0 - 2%
2 - 4 %
4 - 6 %
6 - 8 %
8 - 10 %
More than 10%
Share of total num ber of individuals
Pass ive Active
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ANNUITIES
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PPM´s insurance products•at retirement
not before age 61 lifelong annuity, or joint life lifelong annuity chose pension level: 25%,50%,75%,100%
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• both “variable annuity” and “with profit annuities”
• “Variable annuity” alternative:– pension recalculated each year
• fund value
• expected remaining life time
PPM´s insurance products
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PPM´s insurance products• With profit annuities
– guaranteed yearly amounts– 0 % nominal– possible future bonus
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COST
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IMPORTANCE OF COSTS
Cost Reduction of pension
0,05 % 2 %
0,15 % 5 %
0,25 % 8 %
0,50 % 15 %
0,75 % 22 %
1,00 % 28 %
1,50 % 39 %
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COSTS• PPM’s fee
– Covers collection of contributions, payments, record keeping, trading, information etc.
• Asset management fees– Drawn by fund managers– PPM requires discount to compensate for
distribution costs
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COST OVER TIME
0,00%
0,10%
0,20%
0,30%
0,40%
0,50%
0,60%
0,70%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Per
cen
t o
f ca
pit
al u
nd
er m
anag
emen
t
Admin fee (PPM)
Asset management fee (fund companies)
Total
