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Capital buffers at Danish schemes drop to 2007 levels

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DENMARK - The Danish financial regulator has said capital buffers at the country’s pension funds were still around the same levels they had been in 2007 before the global financial crisis, but the collective pool of funds available for bonuses for customers were smaller than before.

Solvency coverage had been maintained at 3% in 2011 from the year before, corresponding with its pre-crisis level in 2007, Finanstilsynet said in its annual report on the state of lateral pension funds and life insurers.

“Customers’ collective capital buffers, which can be used to withstand losses, measured by the companies’ bonus ratio, fell from 4.9% in 2010 to 3.9% in 2011,” the regulator said, adding that this meant it was below its pre-crisis level.

For the sector as a whole, the proportion of total provisions backing pension guarantees of more than 0% fell to 72% in 2011 from 81% the year before, Finanstilsynet said.

This meant a big part of the companies’ business volume still consisted of pension plans with high guarantees, it said.

“The proportion has been decreasing over the years, and Finanstilsynet expects the current trend towards insurance products with no guarantee or a very limited one to continue in the next few years,” it said.

The government has been actively encouraging Danish pension funds to shift customers towards pension products with no yield guarantee, as these involve less onerous solvency requirements.

In key figures released by the regulator, lateral pension funds produced an overall profit after tax of DKK3.8bn (€510m) in 2011, down from DKK19bn in 2010.

This result was due in particular to the lower investment returns reaped last year because of turbulent financial markets.

Overall investment returns totalled DKK128bn, down DKK30bn from the year before, with returns continuing to vary widely between individual companies, Finanstilsynet said.

Administrative costs rose 9.6% in 2011, while gross contributions were only up 6%.

Total pensions assets in the sector rose DKK245bn to DKK2.64trln in 2011, with life insurers and lateral pension funds accounting for 62% of this.

The remainder was divided among ATP, LD, banks and occupational pension funds, it said.

These total assets were 1.5 times greater than Denmark’s GNP in 2011, the regulator pointed out.

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