Ordinary wage earners will not receive a decent pension
Too few Swedes are in control of the development of their pensions, nor do they seem interested enough to learn. It's a failing of society, especially when considering how much the pension affects people's lives, says Magnus Eriksson, digital and regulatory expert at PA Consulting.
With just over a week left to the Swedish election, both the government and the opposition are aiming to win votes from an ever-increasing electoral group - the country's 2.2 million retirees. But promises of raising pensions are one thing. How pensioners' money is managed is clearly more important. The pension authority must do more to help people with this.
Knowledge and information are the necessary tools for a buyer in a market. If these are missing the result will usually be a malfunctioning market with incorrect pricing and services that do not meet the buyer's needs. This is hardly news for the financial industry in general, but for the pension market and its beneficiaries specifically, it can have tremendous consequences.
And the issue is a concern for most. Eight out of ten Swedish people save in private pension funds or through occupational pensions. In no other country is the proportion of fund savers so high. The fact that pension savings constitute a significant proportion of households' total savings mean that Swedish pension savers are particularly vulnerable to high fees and incorrect composition of their savings.
Ordinary wage earners will not receive adequate pensions for a decent life when they stop working. While both the state and citizens are losers, financial services companies win as large amounts are invested in pension funds (in premium pensions and occupational pensions) and costly insurances. Banks' campaigns offering lower interest rates on mortgages for those who move occupational pensions are a clear sign of good profitability.
The pension authority has recently presented its plan to address the worst mistakes in the system. These are good and necessary measures aimed at clearing out bad pension funds. However, the greatest impact on the individual's pension is the composition of the portfolio.
New automated advisory services like Lysa, Opti and Nordnet’s Robosave focus on helping the customer with this. However, they do not solve the whole problem as they focus on individual portfolios instead of the entire package of portfolios. The average pension savers usually have several portfolios to keep track of, such as the premium pension, several occupational pensions from different employers over the years and private savings.
The Swedish Pension Authority offers good tips on what you can do to increase your pension. A concrete digital initiative is their My Pension service, which provides an overall perspective on pension savings so you can elaborate on expected returns and see how it affects your future pension.
But too few Swedes are in control of the development of their pensions, and they do not seem interested enough to learn. Many still believe that the system is too complicated and difficult to understand. It is a failing of society, especially when considering how much the pension affects people's lives. Understanding the factors that affect the size of the pension is crucial. It will be more necessary for today's workers to be able to live on their pensions.
The Swedish Pension Authority can and should do more to reach out to pension savers. They could start by adding some services to My Pension, such as:
- detailed disclosure of the savings and how the composition of the total portfolio looks, clearly showing the effects of the fees on the pension
- a price runner-like service that visualises differences in fees between suppliers and what that means for a future pension
- a platform that makes it possible to easily change suppliers and funds.
Other initiatives could identify effective channels and forums to educate Swedish citizens at an early stage - perhaps in elementary schools - about the need to plan for their financial lifecycle. The best thing would be if banks and financial institutions could follow on the same route and create truly customer-friendly services for this.
Sweden could become a pioneer country in terms of pensions. Our prerequisites are well suited for the market, partly due to a high level of savings in securities and an innovative environment with many start-up companies. In addition, the technology is already in place. Now, the only missing piece is the system for people to use it fully - and understand why it is important.
Magnus Eriksson, digital and regulatory expert, PA Consulting