With assets of around Dkr18bn ($12.1bn), the TeleDanmark pension scheme is a giant that dominates the corporate pension provision landscape in Denmark.
The scheme was long established as part of the original state-owned companies brought together in 1990 to form TeleDanmark, prior to its partial privatisation in 1994.
The pension scheme was severely under-funded, however, and Dkr9.4bn of the Dkr19bn the company raised at the time of privatisation was used to rectify this, including the repayment of Dkr3.8bn of past loans made by the scheme to the sponsoring companies.
The TeleDanmark scheme, which comprises three funds run on similar lines, is also distinguished by being on a defined benefit basis, in a country where most big schemes are now defined contribution. In fact, the scheme provides benefits similar to those of the civil servants’ plan.
Since 1990 it has been closed to new employees and currently around 6,700 of employees are members, equivalent to 47% of the workforce.
At the time of the transfer of the Dkr9.4bn into the pension arrangements, an agreement was signed with TeleDanmark’s finance department for investment advisory services. Since then the funds have been building up equities, which now account for about 15% of assets. According to the department’s Claus Asger Olsen: From the beginning, we have gone for an international strategy, with just one third in Danish shares, one third in European and the balance divided between North America and the Far East.” The equity investment management is outsourced to a range of external managers.
The finance department reviews the asset allocation strategy yearly, including the choice of equity markets. “We have some real estate, of which a large part is in buildings rented by the company, but owned by the funds.” As a result of the build-up in equities, the fund has good returns, which is crucial in minimising pension costs.
On the contribution side, the strategy has been to get the contribution rate down to 6%, which is more in line with levels within defined contribution schemes, and keep it there. So in addition to making annual contributions to the scheme, the company in 1994 paid a “non-recurring” sum of Dkr5.6bn (part of the Dkr9.4bn raised at privatisation), aimed at keeping future annual contributions to 6% of pensionable salaries.
In the following year, the company paid Dkr1.2bn to the Danish state in a liability buy-out exercise. This sum was in respect of the 1,600 employees who were originally employed as civil servants on whose behalf a contribution of 15% of salary was paid over each year to the state. This amount has been capitalised and is being amortised through the company’s accounts at an annual rate equal to 6% of these employees’ pay.
The third group within the company’s retirement programmes is the 6,300 with external individual or collective arrangements, who joined the workforce after the defined benefit scheme closed. The company contributes to these and again the amount averages out at 6% of pay.
But according to the 1996 annual report and accounts, pension contributions came to over 9% of payroll. However, this consolidates the proportion of the Belgacom figures attributable to TeleDanmark’s 16% stake in the Belgian company. If this is stripped out, the proportion is understood to drop to around the 6% level.”