July-August 2017

ASSOCIATION COLUMN: A game-changer?

Bernt-ZakariassenThe Norwegian funds industry may seem modest, but it has shown steady and solid growth for more than three decades, with assets under management in Norwegian-domiciled funds recently breaking through the €100 billion barrier for the first time. The retail market increased by 4% last year and 34% of Norwegians now use investments funds for savings – not including pensions savings. 

This year the government has introduced two tax changes to boost consumer savings in investment funds even further. 

Equity investment account
The equity investment account, a tax scheme for savings in shares and equity funds for retail investors, will be launched in September. The scheme’s purpose is to make it easier and more beneficial for private individuals to redistribute savings in equities and equity funds, thus boosting consumer investments in the stock market and in investment funds.

During a transitional period in 2017, investors will be allowed to transfer their existing holdings in shares and equity funds into an investment account. Once in, the investor can then swap his or her existing funds for new funds without having to pay tax on accrued capital gains. Hence, the new scheme is expected to be a game-changer for the Norwegian consumer market, and hopefully we will see more cash going into funds. However, there are some question marks related to it.

Norwegian consumers have shown increasing appetite for passively-managed funds with lower costs. With the introduction of the investment account, in which consumers are no longer ‘tax-locked’, is the industry likely to observe an even greater shift from actively-managed funds?

Large banks and fund manufacturers selling directly to consumers have been the dominant business model in the retail market. The investment account may shift the prevailing model towards other distribution models and fund platforms.

The investment account has been a talking point in the industry since the government proposed the new rules in October 2016. There will be a race to secure market position as the competition increases.

Individual pension savings
This is an election year in Norway and, as a last gesture at the end of their four-year period in charge, the government has announced amendments to the individual pension savings scheme (IPS) to make it far more attractive.

From being a product embraced by only a few, the new product will be much more tax-efficient for private pension savings and the changes will be effective for the tax year 2017.

How these two tax changes will affect the net inflow of cash into investment funds remains to be seen. Will there be a boost in savings across all funds, or will the investment account be used by consumers as an opportunity to get out of expensive funds and into cheaper index funds?

Will Norwegians see the benefits of saving for their pension individually, or will they continue to rely on their occupational and government pensions alone?

Bernt Zakariassen is chief executive  of the Norwegian Fund and Asset Management Association (VFF)

2017 funds europe