Sweden Cuts State Pension Funds From Five to Three

Sweden has unveiled plans to restructure its state pension buffer system, cutting the number of AP funds from five to three in a long-anticipated change.

The country’s cross-party pensions group announced on Friday that it supports the reforms, which were first proposed in 2012 in a bid to streamline state pension management and cut costs. Now that they are expected to pass, the changes will be presented in a legislative bill and are set to take effect by 2026.

Under the proposal, the Gothenburg-based Sixth AP Fund (AP6), which specializes in private equity, will be merged into the Second AP Fund (AP2), which will gain increased investment flexibility until 2036. Meanwhile, in Stockholm, the First AP Fund (AP1) will be dismantled, with its assets split between the Third (AP3) and Fourth (AP4) funds, creating two larger entities.

The overhaul follows a long-running review of Sweden’s SEK 2,000 billion ($180 billion) pension buffer system, which supports state pensions. Officials argue the changes will improve efficiency while maintaining investment strength.

“We are protecting taxpayers' money by tightening board requirements and merging funds,”  said Financial Markets Minister Niklas Wykman. “There are clear economies of scale, and this will lower costs while giving us better control over operations.”

The reforms will also adjust the investment cap for Swedish-listed companies. The two remaining Stockholm-based funds will now be able to hold up to 3% of total market capitalization, up from 2%, though voting rights remain capped at 10%.

The government will appoint two special investigators to oversee the restructuring in Stockholm and Gothenburg.

The proposed changes are among the most significant reforms to Sweden’s pension buffer system in decades.

The idea of cutting the number of buffer funds to three was a key part of the recommendations from the buffer fund inquiry of 2012, but the plan was abandoned three years later. With cross-party support now in place, the government is pressing ahead with the restructuring in a bid to improve long-term pension returns.