DENMARK - AP Pension, one of Denmark's leading pension providers, vowed to fight the new cap on profit distribution to members introduced as part of a government package this week.

The limit of 2% imposed on account dividends - the annual yield interest applied to with-profits pension plans - was a good solution for some pension funds with low or zero reserves, the DKK55bn (€7.4bn) commercial pension provider said.

Managing director Søren Dal Thomsen said: "But AP Pension has good economic reserves and can easily give an account dividend of more than 2% - both in the short term and, we expect, in the long term, too. And we will fight to be allowed to do this."

The Danish ministry of business and growth agreed a raft of measures this week with industry association Forsikring & Pension and regulator Finanstilsynet to solve the problems in the industry.

Official reserve requirements for Danish pension funds with minimum yield guarantees on benefits had risen steeply as long bond yields fell in the markets.

The parties agreed to change the calculation of the long end of the discount yield curve, which is used to calculate reserve requirements.

Rather than being based on market rates for bonds and swaps, the 20-year plus component of the curve will now be based on economic growth and inflation forecasts.

Other measures in the package include a cap on account dividends of 2% until January 2014, at which point the European Solvency II regulation is expected to come into force.

Currently, Denmark's commercial pension funds are paying account dividends on their traditional with-profits pensions of between 3.3% and 4.7%, with AP Pension paying 4.7%.

Providers set the level of payout for each calendar year in advance, though it can be adjusted as the year progresses.

"The fact the discount yield is purely technically a little higher means we will not have to make such high provisions as before, but, in the end, customers will still have their money, so it doesn't change the big picture," Dal Thomsen said.

"The account dividend is an expression of the reserves that have been saved up, and it gives a false picture of the sector if everyone gives the same account dividend."

If AP Pension were forced to reduce its account dividend, then customers could be pleased that they would still get the money at another time, he said.

"That is the advantage of being a customer-owned company," he said. "We still expect to be able to give the sector's highest account dividend."

Dal Thomsen said he was even less enthused by the fact the agreement laid the groundwork for pushing customers from with-profits products to unit-link plans.

"Half of our customers' contributions go into with-profits products," he said. "Customers - and particularly our pensioners - are pleased to have traditional with-profits pensions."
Some customers would benefit from changing to a lower-guarantee product, and, for others, it could be an advantage to change to unit link, he said.

"Customers should be able to choose," Dal Thomsen said.