sou · H7B344 · 2019-11-04 00:00:00 — Prior to every choice situation the choice architecture should contain the support and information necessary for the choice concerned. A weak or ill-conceived choice architecture increases the risk that savers’ own attempts to compose a portfolio will be based on rules of thumb, short-cuts and other phenomena known in behavioural economics. This then distinctly increases the risk of financial mistakes that impact on the saver’s pension. Savers should not be blamed for this – if a choice environment containing complicated financial pro- ducts is over large, it is unmanageable for most savers. Against this background the Inquiry considers that at least the following require- ments need to be set for the choice architecture in the premium pension system. The default option should be the starting point for all savers, and this must be reflected in the design of the choice architecture. Since the default option is the starting point, the investment and choice environment is designed so that no activity or financial knowledge is required on the part of the saver. Pension savers who choose to leave the default option should be informed that, by doing so, they are taking over the responsibility for choices and the maintenance of choices. In conjunction with this, the saver needs to be given information, support and guidance for their assessment of whether it is appropriate to leave the default option. It should be possible to choose a risk level as part of state manage- ment without having to enter the fund marketplace. If the saver wants to leave the default option, they should first be given informa- tion about and take a decision on their choice of risk level. If the saver does not only want to choose risk level, there should be a possibility, in the first place, of choosing one or more fund categories that the saver can invest their assets in. If the saver does not only want to choose categories, there should be a possibility for the saver of investing their assets in procured funds in the fund marketplace. The number of categories in the third step and the number of funds in each category in the fourth step of the choice architecture vary depending on factors including the demand from pension savers and the possibility of achieving the objective of the pension system and maintaining the principle of freedom of choice. See section 10 about general principles. The Inquiry considers that the saver should confirm in writing (normally by a digital signature) that they have read information about what compiling their own fund portfolio means. However, over and above the fact that the confirmation is needed to move forward in the choice process, it should not be assigned any further legal impor- tance, but should serve as a important point for the saver to note. As at present, it should be possible to choose the default option again after choosing funds in the fund marketplace. In the electronic choice environment savers should be given appropriate tools, guidance, support and information to simplify their choices in and before every step. At present the absolute majority of fund choices and fund switches (99 per cent) take place through self- service services via the internet. Naturally this is mainly because of demand from savers, but another reason is that the has consciously stressed electronic solutions ahead of paper forms. The Inquiry proposes no changes in these respects and con- siders, instead, that the general rule should continue to be electronic procedures and that paper forms should only be offered to individ- uals who neither can nor can be required to be able to use electronic services. The starting point for the choice architecture is thus digital solutions. The proposed choice architecture thus consists of four parts, see Figure 1, presented to the saver in an online interface in the follow- ing order: 1.a default option, 2.a possibility of choosing risk as part of the default option, i.e. as part of state management, 3.a possibility of choosing category and 4.a fund marketplace containing procured funds. The default option, choice of risk level and fund marketplace are all parts of the present premium pension system. The present default option, AP7 Såfa, is a generation fund that consists of the block funds Fixed Income. At present the choices of risk level consist of the three fund portfolios, called risk port- folios, AP7 Offensive, AP7 Balanced and AP7 Cautious, which contain other combinations of the block funds than the default option and therefore result in another risk level. The design of the default option is dealt with as part of the review of the default option.55 The general principles for the procurement of funds for the fund marketplace and the regulatory framework for this are dealt with in sections 10 and 11. So the categories are the step in the proposed choice architecture that does not exist in the present premium pension system. Category choice means that the saver decides which category or categories of funds they want to invest their assets in, but not which individual funds. The categories could be designed through procured index 55Fi2019/00913/FPM. funds, for example. However, the exact design of the categories ought to be determined by the new agency. One starting point for the division into categories can, for example, be broad and established categories such as the equity categories of global, , , /North , , emerging markets and global small enter- prises and a number of relevant fixed income categories. The categories can be called Premium pension category global equities and so on. The division into categories should be reviewed continuously in the light of savers’ demand and the performance of the capital market. This third step satisfies wishes among savers who want to choose not only their risk level but also their investment approach. How- ever, in this step the saver does not need to make a choice of fund manager. The Inquiry considers that this step is justified by making it significantly easier for savers to choose between around 10 fund categories compared with hundreds of funds. In addition, it fulfils the principle of freedom of choice proposed by the Inquiry through the interpretation of real freedom of choice as the possibility for savers to choose the approach of their saving through different investment approaches and risk levels. Moreover, the choice of fund categories rather than individual funds gains support from research indicating that it is asset split up by sectors that explain the bulk of the variation and return in outcomes, and not individual funds.56 If the saver also wishes to make a choice of fund supplier, i.e. fund manager, it is possible to do so in the fourth step, which offers all procured funds in the fund marketplace. The Inquiry’s assessment is that the size of the capital in the premium pension system creates good conditions to enable the design of the third step – the possibility to choose categories to lead to very low fees for savers through, for instance, procurement of index funds. 56See, for example,The of the Swedish Premium Pension offering, , , 2017. Regulation of the choice architecture The main features of the choice architecture should be regulated by law since it is a central part of the functioning of the premium pension system. How the environment is designed will also be of great importance for the number of funds and what kind of funds are procured. The Inquiry’s terms of reference state that one clear purpose of the reform of the premium pension system is to create a regulatory framework that means that the Government is unable to steer the selection of funds. For this reason, too, the main features of the choice architecture should be regulated by law. However, the more detailed regulation of the choice architecture ought to take place at a lower level in the legislative hierarchy. One important reason for this is that the choice architecture needs to be reviewed and adapted continuously on the basis of saver behaviour, the performance of the fund market and behavioural economics research. The legislative process is unnecessarily protracted and com- plicated for these specific needs. Since the design of the choice archi- tecture is of great importance for the selection of funds, such more detailed regulations about the choice architecture should not be issued by the Government; this should be done by the new agency. The main addressee of regulations concerning the choice archi- tecture is the , which supplies the choice architecture in their online interface in relation to savers. Since the regulations are directed at the and do not entail obligations for individuals or encroachment on their freedom or property, they are regulations that can be issued by the Govern- ment or the authority designated by the Government pursuant to Chapter 8, Article 7 of the Instrument of Government. Since the Riksdag is always able to issue an act of law in the Government’s area of competence (Chapter 8, Article 8 of the Instrument of Govern- ment) there is no impediment to the main features of the choice architecture being issued by law in accordance with the Inquiry’s proposal. However, the competence to issue more detailed regula- tions concerning the choice architecture should be given to the new agency, in accordance with what is stated above. It should therefore be made clear through an informative provi- sion that the Government or the authority designated by the Govern- ment may issue more detailed regulations concerning the choice archi- tecture pursuant to Chapter 8, Article 7 of the Instrument of Govern- ment. The Inquiry’s proposal and the starting points of our terms of reference assume that the Government will not make use of its for- mal competence to issue regulations and will instead pass the issuing of new regulations regarding the choice architecture on to the new agency. Choice of risk level as the first step after the default option –possible even with the default option designed as a diversified growth portfolio The Inquiry’s assessment: There is no tension between design- ing a choice architecture in which the first step after the default option is choosing the risk level and, at the same time, designing the default option as a diversified growth portfolio. Reasons for the Inquiry’s assessment The Pension Agreement states that in addition to the default option being the starting point for saving in the premium pension, there should be a possibility within the default option for savers to adjust their individual level of risk upwards or downwards. It also states that the default option should be reviewed, as has also been done in the memorandum The default option alternative in the premium pen- sion [Förvalsalternativet inom premiepensionen].57 The memorandum proposes changing the design of the default option with a clearer division into saving and payment phases. According to the memorandum, the present design of the default option as a generation fund containing several funds should be replaced during the saving phase by a fund designed as a diversified growth portfolio, focused on accumulating pension assets. The fund should, according to the memorandum, have a greater possibility of long- term and alternative investment strategies; the memorandum pro- poses that the possibility of daily trading and valuation should there- fore be limited. 57Fi2019/00913/FPM. The memorandum also proposes removing the possibility of risk adjustment in the default option alternative; the justification for this is that the possibility of adjusting risk should instead be satisfied by having funds in the fund marketplace that have been procured so as to offer diversification of risk and return in a relevant way in relation to the default option alternative’s fund. The Inquiry considers that there is an unfortunate confusion of concepts in the memorandum. In the view of this Inquiry, a distinc- tion must be made between the default option as a product and the agency managing the default option. The Inquiry interprets the inten- tion of the as being both for the first step after the default option to be choosing a desired level of risk and for this to take place as part of state management. It is also the opinion of the Inquiry that that is the most reasonable approach. At present it is possible to adjust risk in relation to the default option (AP7 Såfa) as a product through the three risk profiles. The proposed changes of the default option as a product to a diversified growth portfolio without daily trading changes the possibilities of being able to adjust risk in relation to the default option as a product. But this is not the same thing as saying that it should not be possible as part of the same state management, i.e. in practice in the same authority, to choose risk in the first place, and not individual funds, after the default option. The Inquiry therefore finds that there is no contradiction be- tween implementing the memorandum’s proposal with the default option designed as a diversified growth portfolio and, at the same time, designing the choice architecture in the way proposed by the Inquiry above, i.e. that the first step after the default option is choos- ing a level of risk. In fact, both proposals actually work in the same direction, that of strengthening the pension saver’s ability to make rational decisions about their premium pension in order to obtain as high a pension as possible. If the memorandum’s proposal of the default option designed a diversified growth portfolio is imple- mented, the choice of risk level, i.e. the second step in the choice architecture, can be designed through, for example, capital manage- ment in the form of a state fund shell, which can then consist either of state or procured private funds. How this is to be done in practice ought to be a matter left the new agency to determine in the light of what is most beneficial for savers and what will increase the possi- bilities to achieve the objective for the premium pension system. The stronger the choice architecture, the more funds are possible in the fund marketplace The Inquiry’s assessment: A well-designed choice architecture with clear steps in the choice process and blocks of unwanted and poorly considered choices provides scope to permit a relatively large number of funds with different risk levels and investment approaches in different categories. Vice versa, a weak choice archi- tecture only provides scope for a small number of funds in the fund marketplace. Reasons for the Inquiry’s assessment How the choice environment is perceived and makes people behave will, of course, be affected by many different factors. One important factor is the number of funds in the fund marketplace and how they are presented to savers. Our terms of reference state that it is not part of the Inquiry’s remit to propose the number of funds in the fund marketplace. The number of funds that will actually be present in the procured fund marketplace should, according to our terms of reference, be determined through professional trade-offs between offering pension savers real freedom of choice between cost-effec- tive funds that reflect the demand for funds, on the one hand, and the possibilities for the agency to be able to ensure controlled funds of good quality, on the other. The Inquiry notes that the large number of funds in the present system has made it difficult for savers to make conscious choices. Of course, the new agency’s procurement of funds must take account of this and of what is shown by behavioural economics research. How- ever, the inquiry considers that a robust and clear choice environ- ment with in-built blocks to prevent individuals who lack the know- ledge or will to choose funds from nevertheless reaching the fund marketplace does enough to reduce the risk and disadvantages of a relatively large range of funds. A well-designed choice architecture with clear steps in the choice process and blocks of unwanted and poorly considered choices provides scope for the new agency to permit a variety of funds with different risk levels and investment approaches from several suppliers. It does not appear unlikely that a number of funds at the level of the maximum number of funds in the selectable part of the occupational pension system, i.e. 150–200 funds (see sec- tion 6.5.3), could function in accordance with the objective proposed by the Inquiry below. However, the question of the number of funds will be decided by the new agency. Which steps in the choice architecture should be combinable? The Inquiry’s proposal: Neither the default option nor the choice of risk level should be combinable with investment in funds in the fund marketplace of the premium pension. The Inquiry’s assessment: Whether the categories and the pro- cured funds in the fund marketplace should be combinable with one another depends on the design of the categories and will be a matter for the new agency. When making decisions on this matter, the agency ought to take account of the possibility of achieving the objective of the premium pension system and of the right to freedom of choice. Reasons for the Inquiry’s proposal and assessment As stated above, the purpose of the design of the choice architecture is to help savers to be positioned in the step that is most suitable for them. The savers who do not have the knowledge and interest to choose funds in the fund marketplace should not need to or be encouraged to so either. So it appears contradictory that savers in the default option should be able to choose funds in the fund marketplace. The Pension Agreement states that the choice of level of risk should be made as part of the default option; according to the Inquiry’s discussion above, this should be interpreted as being as part of state management. It is therefore reasonable for the choice of level of risk to be covered by the same principle. The savers who have the knowledge and interest to make further choices in addition to their level of risk will be able to choose first between fund categories and then between the procured funds in the fund marketplace. Given the design of the choice architecture and the fact that the savers who choose from fund categories and funds in the fund marketplace are expected to have the knowledge and ability required to make these choices, there may be a need to be able to combine fund categories and the funds in the fund marketplace in a portfolio so as to, for example, attain the level of risk wanted. However, whether it will be possible to combine the fund categories with individual funds in the fund marketplace will be determined by the exact design of the fund categories, which will be a matter for the new agency. Here the agency ought to take account of how a possibility of combining fund categories and individual funds leads to higher achievement of the objective of the premium pension system and whether it takes account of the right to freedom of choice. In the transition from the present fund marketplace to a procured fund marketplace, and even after that, it will, in some cases, be neces- sary to allow savers to have parts of their saving in the default option and parts of their saving in funds in the fund marketplace. These exceptions to the main rule are dealt with in section 12.3 about the transition to a procured fund marketplace. Figure 1 Choice architecture of the premium pension system as part of state one fund category. the premium pension. 1.Santiagokonventionen mot organhandel. 2.Ingen regel utan undantag – en trygg sjukförsäkring med människan i centrum. 3.Effektivt, tydligt och träffsäkert –det statliga åtagandet för framtidens arbetsmarknad. 4.Framtidsval – karriärvägledning för individ och samhälle. 5.Tid för trygghet. 6.En långsiktig, samordnad och dialog baserad styrning av högskolan. –ett enklare förfarande. 9.Privat initiativrätt – planintressentens medverkan vid detaljplaneläggning. 10.Stöd för validering eller kompetens åtgärder i samband med korttidsarbete. 11.Biojet för flyget. 12.Nya befogenheter på konsumentskyddsområdet. 13.Agenda 2030 och : Världens utmaning – världens möjlighet. –med e-legitimation. 15.Komplementär och alternativ medicin och vård – säkerhet, kunskap, dialog. –med förtydligat ansvar. 17.Bebyggelse- och transportplanering för hållbar stadsutveckling. 18.För flerspråkighet, kunskaps utveckling och inkludering. Moders målsundervisning och studiehand ledning på modersmål. i arbetslivet – behovet av utökat författningsstöd. 20.Stärkt kompetens i vård och omsorg. 21.Effektivt investeringsfrämjande för hela . – dess uppgift och organisation för en god miljöförvaltning. 23.Styrkraft i funktionshinderspolitiken. 24.Stärkt integritet i idrottens antidopnings arbete. 25.Genomförande av ändringar i utstationeringsdirektivet. 26.Organbevarande behandling för donation. Praxisgenom gång och analys. 28.Komplementär och alternativ medicin och vård – ny lagstiftning. 29.God och nära vård. Vård i samverkan. 30.Moderna tillståndsprocesser för elnät. 31.F-skattesystemet – en översyn. 32.Straffrättsligt skydd för barn som bevittnar brott mellan närstående samt mot uppmaning och annan psykisk påverkan att begå självmord. 33.Ökad statlig närvaro i . 34.Förbättrat skydd för totalförsvaret. 35.Demokrativillkor för bidrag till civil samhället. + Demokrativillkor för bidrag till civilsamhället. Vägledning för hand läggare. 36.Skattelättnad för arbetsresor. En avståndsbaserad och färdmedels neutral skattereduktion för längre arbetsresor. 37.Kontroller vid högskoleprovet – ett lagförslag om åtgärder mot fusk. –nya processrättsliga verktyg. 39.En moderniserad radio- och tv-lag –genomförande av ändringar och utfall i den svenska skolan. 41.Företagare i de sociala trygghets systemen. Tillgänglig primärvård baserad på behov och kontinuitet. 43.Med tillit följer bättre resultat – tillitsbaserad styrning och ledning 44.Ett bättre premiepensionssystem. Effektivt, tydligt och träffsäkert –det statliga åtagandet för framtidens arbetsmarknad. Tid för trygghet. [5] Belastningsregisterkontroll i arbetslivet –behovet av utökat författningsstöd. Genomförande av ändringar i utstationeringsdirektivet. Stöd för validering eller kompetensåtgärder i samband med korttidsarbete. Nya befogenheter på konsumentskyddsområdet. Agenda 2030 och : Världens utmaning – världens möjlighet. F-skattesystemet – en översyn. [31] Ökad statlig närvaro i . Skattelättnad för arbetsresor. En avståndsbaserad och färdmedels neutral skattereduktion för längre arbetsresor. och utfall i den svenska skolan. [40] Med tillit följer bättre resultat –tillitsbaserad styrning och ledning i staten. Förbättrat skydd för totalförsvaret. Moderna tillståndsprocesser för elnät. – ett enklare förfarande. – med e-legitimation. Praxisgenomgång och analys. Straffrättsligt skydd för barn som bevittnar brott mellan närstående samt mot uppmaning och annan psykisk påverkan att begå självmord. – nya processrättsliga verktyg. Stärkt integritet i idrottens antidopnings arbete. Demokrativillkor för bidrag till civil samhället. +Demokrativillkor för bidrag till civilsamhället. Vägledning för hand läggare. En moderniserad radio- och tv-lag –genomförande av ändringar i AV-direktivet. Biojet för flyget. – med förtydligat ansvar. [16] miljöövervakning –dess uppgift och organisation för en god miljöförvaltning. Privat initiativrätt – planintressentens medverkan vid detaljplaneläggning. Bebyggelse- och transportplanering för hållbar stadsutveckling. Företagare i de sociala trygghetssystemen. Santiagokonventionen mot organhandel. Ingen regel utan undantag – en trygg sjukförsäkring med människan i centrum. Komplementär och alternativ medicin och vård – säkerhet, kunskap, dialog. Stärkt kompetens i vård och omsorg. [20] Styrkraft i funktionshinderspolitiken.