Are you employed by a company in the private sector that has signed a collective bargaining agreement (🇸🇪 kollektivavtal)? Great news! In that case your occupational pension (🇸🇪 tjänstepension) is managed, negotiated and procured collectively. But wait, what? Collectively? What does that mean?
Well, imagine an episode of Shark Tank (🇸🇪 Draknästet), where we (the workers) are the jury (🦈 sharks) and pension trustee companies get to pitch to us why they should get to manage our money (pension deposits). Sounds too good to be true? It isn’t. This is exactly what happens during the ITP procurement process and it’s brilliant.
The quinquennial procurement
I mentioned the word “procurement” (🇸🇪 upphandling) and this procurement of pension trustees happens every 5 year for the ITP pension scheme. ITP stands for “industrins och handelns tilläggspension” in Swedish. Roughly speaking that means it’s the pension solution for all white collar workers employed in the private sector under a collective bargaining agreement. That’s approx 2.2 million workers employed with ~37000 different companies with approx 60 billion SEK in combined pension capital.
The procurement happens every 5 years and this year it’s time for the 5th procurement round. The procurement itself is managed by Collectum, an independent actor without profit motive, on behalf of Svenskt Näringsliv (employer cooperation organisation) and PTK (union cooperation organisation). And the procurement consists of Collectum carrying out a review of all current trustees as well as new actors/trustees. And since the combined pension capital of ITP is 60 billion SEK, the competition is fierce 🔥
So how does Collectum pick the top contenders? Main thing they look at is historical performance and fees. Because the goal is to maximise performance and minimise fees. And after they pick their top trustees (at least 3, never more than 5), the final choice is up to you. And then every 5 years you can choose to continue with your current trustee, or switch to another one. Usually there aren’t massive changes from procurement to procurement in terms of available trustees. But if your current trustee loses a procurement I’d personally move my funds out of their care and into one of the newly procured trustees (they won for good reason).
The 2 parts of the ITP
Let’s look a little closer at how the ITP scheme is set up. So, the ITP pension deposits are divided into 2 equal parts. 50% of your funds are directly deposited into a so called traditional insurance (🇸🇪 traditionell försäkring) and here you only make the choice of which trustee you want. The other 50% can either be kept in the same kind of solution, or be deposited into a so called unit-linked insurance (🇸🇪 fondförsäkring). Here the risks are higher, but so are the rewards. So it’s up to you to decide the size of your risk appetite. My rule of thumb would be that the further away from retirement you are, the higher your risk appetite should be 😋
Procurement highlights
Now that we know that there’s both traditional and unit-linked insurance, let’s look at the highlights of the 2023 procurement:
- For the traditional insurance (🇸🇪 traditionell försäkring) 5 trustees were chosen: Alecta, AMF, Folksam, Nordea and SPP.
- Alecta remains the default choice (if you don’t make one yourself). This is because they’ve performed the best, with the lowest fees. This is true regardless if you look at 5, 10 or 15 years of historical data.
- The average fee for the traditional insurance is now 0,09%
- For the unit-linked insurance (🇸🇪 fondförsäkring) 5 trustees where chosen: Handelsbanken, Länsförsäkringar, Nordea, SPP and Swedbank.
- The average fee for the unit-linked insurance default choice (🇸🇪 entrelösning) is now 0,11%, compared to 0,14% in 2018 and 0,23% in 2013.
- The average fee for the unit-linked insurance optional funds is now 0,21%, compared to 0,30% in 2018 and 0,39% in 2013.
- Investing in the same fund on the open market now cost nearly 4x as much (average fee 0,83%).
- The amount of available fund options has increased by 56% compared to the 2018 procurement. They’re now 119 in total.
To clarify, in the unit-linked insurance there’s a default choice, and then there are 119 additional funds to choose from. The further away from the default choice you go, the more well-versed in the fine print I think you should be. The default choice is there for a reason, the fees are minuscule and the historical performance great. It’s by no means a bad choice, quite the opposite.
Anyhow, the new choices are available from Oct 1st 2023 so just log onto Collectum.se and have at it!