Denmark’s largest pension fund, ATP, has tried to explain to Danes why guaranteed pensions – such as its own first-pillar scheme – and market-rate pensions increasingly offered by private providers have a role to play as interdependent parts of the country. -leased retirement system.
In the latest of ATP’s occasional “Faktum” analysis notes, the DKK 676.9 billion (€91 billion) pension fund said lower financial market prices were impacting negative on pensions.
“However, the Danish pension system is screwed in such a way that when negative returns hit private pensions, public pensions compensate to some extent for the ongoing private pension decline, through the so-called compensation mechanism,” the statement said. ‘ATP.
“Conversely, private pensions relieve public pensions when markets generate positive returns – both through the compensation mechanism and through the PAL [pensions return] tax,” he said today.
“Besides the compensation mechanism, guaranteed pensions, like the ATP Lifelong Pension, also contribute to stability in the event of market fluctuations, because the guarantees remain in force, despite the decline in the financial markets,” writes ATP.
The release comes at a time when ATP has suffered huge losses, with its total assets losing around 29% of their value between January and September, and over the same period average market-rate pensions savings- average pension at the market rate in the Nordic country fell by 14%.
Around half of Danes on a market-rate pension are expected to see their monthly payments fall in 2023, according to pensions and insurance lobby group IPD.
ATP’s collateral-based business model has also been questioned by prominent finance professor Jesper Rangvid, following losses reported in the pension fund’s third-quarter interim report.
In the post, ATP chief executive Martin Præstegaard commented on the move over the past 10 years to market rate products from mid-rate repo with guarantees, saying: “In good times, when everything has increased, it may have escaped people. note that some products are guaranteed, and others are not.
“In the good times, when everything went up, it may have escaped people’s attention that some products are guaranteed, and some are not”
Martin Præstegaard, CEO of ATP
“But clearly the division of labor in the pension system has become a bit more evident now, when people go into their retirement account and see things have gone down,” he said.
That didn’t mean market-rate products were bad, he said.
“But it’s important that we have a good division of labor and make sure we have the right mix of market rate products, guaranteed products, life annuities and installment pensions,” Præstegaard said.
Citing figures from the FSA, the ATP said the proportion of pension contributions from life insurers and lateral pension funds going into products at market rates rose to 74.6% in 2021 from just 8 .3% in 2003.
Kent Damsgaard, CEO of IPD, was also quoted in the Faktum memo, saying it was the interplay between the public and private pillars of the Danish pension system that made it unique.
Public pensions, the compensation mechanism and the guaranteed ATP pension in the first pillar allowed the individual saver to have more investment risk in the second pillar, thus obtaining a higher return, he said. declared.
Damsgaard said on Friday it was important for Danes to know more about their pension plans.
Denmark’s pension system has for years been one of the few in the world to receive an “A” grade in Mercer’s annual Global Pension Index.
Separately, three other Danish pension funds have now imposed withdrawal penalties on some of their mid-rate pension products, according to the growing list of such measures published on the IPD website.
New additions to the list are AP Pension, Sampension and ISP Pension, with P+ having amended its list of products where withdrawal penalties now apply.
Withdrawal penalties, known as “price protection” (kursværn) in Denmark, are a measure taken by pension providers when investment losses deplete bonus reserves.