July 2009

ASSOCIATION COLUMN; tax reform critical to Swedish fund success

Pia Nilsson, MD of the Swedish Investment Funds Association writes that the investment fund industry has an important role in helping to increase people’s knowledge of funds... pia_nilsson.jpgNearly everyone in Sweden saves in investment funds. There is 98% coverage if we include those in the state pension system, called premium pension or PPM. If PPM funds are excluded, there are still 74% of Swedes who own shares in a fund – 76% of women and 71% of men. Even 64% of all children have fund savings.

How did it all start? The introduction of tax-favourable funds in the early 1980s was hugely significant. The Swedish national economy was substantially unbalanced at this time. A committee was appointed to review methods in stimulating household savings. The result was the ‘allemans’ saving programme. Until 1990 the return on these funds was tax-free. You were only allowed to save a small amount each month but the funds were very popular and the Swedes learned that even a small amount each month can grow to a considerable savings capital.

It started with funds investing in Swedish equities. Today investments extend all over the world and emerging markets especially have been popular over the last few years. Today you can also invest in funds in all three pension pillars and pensions saving in funds has increased from 30% to 60% of fund assets over the last ten years.

Except for pensions there are no tax incentives for savings in funds today. On the contrary there are some really serious tax problems in Sweden.

The number of funds sold on the Swedish market today amounts to over 4,000 and competition from foreign players has increased. A competitive market situation promotes healthy development. When it comes to new savings in funds, the competition climate is working well. But many people avoid switching funds, partly due to the tax on capital gains which means the amount invested in the new fund will be lower than if the saver stays with the old one. The Swedish Investment Fund Association (SIFA) wants Sweden to adopt the same system as Spain where investors can switch funds without having to pay tax.

But that’s not the only tax problem. In Sweden both politicians and the industry welcome Ucits IV as a considerable step towards a common market for funds in Europe and improving the competitiveness of Europe’s funds globally. It is, however, most unfortunate that funds authorised by the Swedish Financial Supervisory Authority cannot participate in this market. Quite simply, these funds cannot be sold outside Sweden because of a special tax on the fund itself. This tax must be abolished as a matter of urgency and this is one of the association’s highest priority issues in 2009.

2008 was a gloomy year for fund savings. New saving levels fell, as did the value of capital assets, but 2009 has seen a revival in interest in fund saving. Investment funds are an excellent savings format that offer large and small investors alike the chance to get involved with equities, bonds and other investments worldwide.

There is a lot of talk about investor protection. This is of great importance, but investor education is even better. The investment fund industry has an important role in helping to increase people’s knowledge of funds. SIFA has launched a special website for savers and we are also sponsoring an initiative reaching out to upper secondary school students with fund savings know-how.  
Investor education is of great importance to stimulate retail investors to be a little more active. Long-term saving is not the same as being passive. Stimulating investors to take a more active role is good for competition. Not to mention the abolishment of tax obstacles.

• Pia Nilsson is managing director at the Swedish Investment Fund Association, and author of Fantastiska fonder –
med värme i hjärtat och is i magen (Funds are fantastic – investing with a warm heart and a cold head)

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