The goal of the Institutions for occupational retirement provision directive or IORP, is to facilitate the development of occupational retirement savings and to provide sustainable and adequate occupational pensions for European citizens. IORP II is the most recent second iteration of the European Union’s sweeping reform of pension fund legislation. It came into force on 13 January 2019 and added 43 new articles to the original IORP directive and put a renewed focus on governance and communication standards.
These changes particularly impact Sweden, as Norway, Finland and Denmark generally have assets in other pension vehicles. As a result the Swedish pension market is in a state of flux, with smaller providers struggling to meet the costs of adapting to IORP II, leading to mergers and takeovers within the industry.
Separately, the IORP II implementation bill passed in Sweden on 15 December 2019. This will allow insurance companies and workplace pension savings institutions to be converted into occupational pension companies, as long as they meet certain requirements. This means a move away from tough Solvency II capital requirements. The gold plating in the IORPs transposition into national law has led to concerns about the possibility of poorer outcomes for savers, due to higher costs without a corresponding increase in consumer protection.
In 2020 we expect to see insurance companies making the move to become IORPs but then also examining their cost base and how they implement investor decisions in the most cost-efficient way.
Fund structures for ex Nordic distribution
Domestic funds generally work well for domestic investors. Danish funds for the Danes, Swedish special funds for the Swedes. However, outside of home markets investors and consultants typically look to mutual funds from familiar global fund centres like Luxembourg and Ireland. (For more on the benefits of Ireland as a fund domicile see the recent HedgeNordic article “Why Ireland ticks the box as a fund domicile”.)
However, we’re now also seeing demand rise for the right type of fund. For withholding tax reasons, corporate fund types are not suitable for tax exempt investors like pension funds when invested into global equities.
In 2020 we will be working with Nordic managers in helping them set up suitable collective investment schemes to distribute their skill throughout the world.
Swedish Pension Fund Authority changes
The funded part of Sweden’s first pillar Premium Pension System (PPM) is being revamped during a complete regulatory review. The aim is to improve standards and increase investor protection following some scandals and poor performance. The number of funds available is being rationalised with minimum requirements being placed on investment managers.
We expect future plans to include a greater role for AP7, the default fund, a focus on manager selection and a more guided approach to providing saver solutions.
Insurance companies are looking at how they manage the assets of their end-savers in the most efficient way. Many conducting root and branch reviews on how they digitalise and how they offer cost effective funds.
As these reviews conclude we expect to see a shift away from the internal delivery of fund infrastructure and towards the use of specialist partners.
We look forward to seeing positive changes in 2020 to deliver better outcomes for end investors across the Nordics. Whether it is IORP II, fund structures, Swedish Pension Fund Authority changes, or platform infrastructure, if you’re looking to address any of these issues, then please get in touch to see how we can help.
Photo credit: Aaron Overy