Does the Swedish premium pension provide the right incentives to its stakeholders?

Abstract: This thesis specifically aims to investigate the Swedish Premium Pension system. An overview of the characteristics of the system and of the changes that have been made to the system during the last 10 years will be provided. Afterwards specifics of the system like the fee rebate (i.e. discount on the fees) and attentiveness of pension investors will be investigated. The effects of the fee rebates on fund managers and on the observed and true returns after and before costs for pension investors are estimated. Fund managers respond to the rebates by opening many smaller funds (less than 1 billion SEK) to avoid higher rebates. The rebates are beneficial for the pension investors, but they still participate in a zero sum game and should not expect to generate any positive alphas. The value weighted returns even indicate that pension investors have lower returns than retail investors, despite the rebates. Pension investors also exhibit inattentiveness compared to retail investors. Pension investors weakly chase positive performance but hardly react to negative performance. Both to positive as to negative returns, retail investors react more strongly. Based on these findings, several changes to the Premium Pension are suggested that could improve the functioning of the system for its stakeholders.