Stockholm (NordSIP) – On March 25th, the Swedish Fund Selection Agency (Fondtorgsnämnden or FTN) awarded procurement agreements for actively managed European large/mid cap equity funds on Sweden’s premium pension fund platform to the following six fund managers:
- Abrdn Investments’ European Sustainable Equity Fund
- AMF Aktiefond Europa
- JPMorgan Funds Europe Sustainable Equity Fund
- Nordea 1 – European Stars Equity Fund (BP-EUR)
- SEB Europe Equity Fund
- Swedbank Robur Europafond A
None of the funds qualifies as Article 9 under the EU’s Sustainable Finance Disclosures Regulation (SFDR). This is due to the inability of any Article 9 fund to perform better on FTN’s procurement criteria than the six funds selected. Nevertheless, all funds report as Article 8 rather than the minimum Article 6.
“We are pleased with the outcome. It gives pension savers access to high-quality funds at a lower cost”, said Mats Sjöstrand, chairman of FTN. “This marks an important step towards our goal of providing savers high-quality funds that provide a safer and higher pension,” Erik Fransson, executive director of FTN, added.
The Swedish Premium Pension System and FTN?
Understanding this decision requires a bit of historical context. The Swedish Pension System is organised into three broad parts, regarding the pension contributions and revenues made by workers and later received by themselves in retirement. Thought of as a pyramid, public state pensions are at the base, topped up by occupational pension schemes and last by private savings.
As was the case in most Western countries, after World War II, most of Sweden’s public pension agreements worked in defined benefit (DB) systems, a generally speaking rigid and overly generous approach that tends to not tie pension revenues to pension payments. By the end of the 20th century, the system had become financially unsustainable. As a result, in the end of the 1990s, Sweden reformed its pension system, slowly moving all public pensions towards a mandatory defined contribution (DC) pension system.
Among other facets of this system, every year, 2.5% of workers’ pensionable income and other taxable benefits is allocated to the premium pension system (PPM), a mandatory savings account administered by the Swedish Pensions Agency. To ensure the pension income necessary to sustain pensioners through their retirement, the Swedish Pension Agency (Pensionsmyndigheten) provides for a number of investment options through different funds.
However, the fund selection process has been marred in controversy since the very beginning of he new DC system. As researcher Anika Seemann explains, unexpectedly conservative investor behaviour and an overly crowded market, “led to problems in implementing the system as it had been conceived when it was introduced.” In 2000, there were over 500 funds registered in the system. By 2008 there were 83 fund managers operating 773 funds in the PPM marketplace, worth approximately SEK231 billion. Seemann, says there were 800 funds in operation by 2012. However, too much choice and not enough regulation soon started raising concerns that some fund management companies were taking advantage of the PPM market. The issue came to a head in 2017 with the Allra telemarketing scandal, which led to a cross-party agreement in parliament to reform the PPM marketplace.
In its latest attempt to address these concerns, in May 2022, the Swedish parliament created FTN and the agency with the responsibility of cleaning the premium pension system from unreliable actors to make it safer without compromising returns and lower costs to savers.
How Sustainable are the FTN-Selected Funds?
It appears that not a single fund in the procurement announcement can be described as an Article 9 fund according to the EU’s SFDR.
Abrdn Investments’ European Sustainable Equity Fund, AMF Aktiefond Europa, JPMorgan Funds Europe Sustainable Equity Fund, Nordea 1 – European Stars Equity Fund (BP-EUR), SEB Europe Equity Fund and Swedbank Robur Europafond A all report as Article 8 funds, according to SFDR.
According to the definitions of SFDR, Article 8 funds classify as middle of the range in terms of their sustainability ambitions. While Article 6 have no sustainability focus, Article 8 funds are said to promote promote environmental or social characteristics. They are superseded in their sustainability credentials by Article 9 funds, which have sustainable investment as their objective.
Why No Article 9?
According to the FTN, by law, the funds procured must be suitable, controllable, sustainable, cost-efficient and of high quality. In addition, the range of funds on the fund platform must provide freedom of choice for pension savers. According to Nadine Viel Lamare, Head of Sustainability at FTN, these criteria played an important role in the selection of the funds.
“As you can see in our procurement report, all funds have been evaluated on a number of dimensions. In short, it is about having robust processes in place throughout the investment process. To be an Article 9 reporting fund is not, per se, enough and none of the Article 9 reporting funds that participated in the tendering process scored high enough on the overall evaluation to be awarded a fund contract,” Viel Lamare told NordSIP.
Next Steps
Following this decision, approximately SEK11 billion of the premium pension savers’ assets will be allocated to these funds. Around 130,000 pension savers have holdings in funds affected by the procurement.
The funds in the category that have not been allocated will be phased out from the fund platform after the decision has gained legal effect. Savers with funds that are removed from the fund platform are given the opportunity to make a new choice. However, savers do not need to do anything but are automatically moved to an equivalent, procured fund if no choice is made.
