Danish government, pension association discuss easing negative yield pressure
DENMARK - The Danish government and pensions industry is taking swift action to avert a potential crisis over funding levels, sparked by falling yields on the country's sovereign bonds.
A spokesperson for the Danish pensions industry body Forsikring & Pension (F&P) said the association was currently engaged in discussions with the Ministry of Business and Growth as well as the Danish financial regulator Finanstilsynet.
Yields on short-term Danish sovereign debt were negative last week, with the parties trying to assess how this impacted pension funds, the F&P spokesman confirmed.
Separately, the regulator has taken the rare step of asking all pension funds to submit a statement of their current financial situation.
A spokesman for Finanstilsynet said: "We have asked the pension companies to submit data from May 31st today, so we can evaluate a more updated traffic light assessment."
Regular statements are made to Finanstilsynet at the end of each calendar quarter, with the most recent data submitted to the regulator on fund solvency dating from the end of March. The regulator has only requested additional information in times of market crisis, notably last year and during 2008.
The fall in yields is particularly serious for pension providers with traditional with-profits pension schemes, which include yield guarantees. Under solvency rules, these companies are forced to put aside higher capital reserves to back benefit promises when bond yields are low.
F&P declined to comment on any of the ideas being put forward in the talks to resolve the situation. But Danish press reports say the authorities are investigating whether they can make technical changes or introduce a suspensions in order to relieve the pressure on pension funds.
Turmoil in the global financial markets has sent investors scrambling to put their money into the securities of "safe haven" countries such as Denmark, Germany and Switzerland. The market demand has sent bond yields to the floor, and in some cases below it.
Yields on two-year Danish government bonds turned negative at the end of May, having been on a downward trend for the last year. The notes currently yield around -0.07%, according to data from Bloomberg.
Ten-year Danish government bonds have fallen to 1% from around 2% in March. A year ago, the gilts were trading with a yield of just over 3%.
Danish pension funds have sought to reassure scheme members, circulating statements.
AP Pension's managing director Søren Dal Thomsen said the situation was serious as yields had never been so low, but said the pension fund was in control of customers' money.
"Our reserves are intact, because we have insured ourselves, using interest-rate hedging, against the situation that has arisen," he said.
"We support the industry association's initiative in relation to the minister, and we are following developments on the financial markets closely," he added.
Unipension, which administers three professional pension funds in Denmark, said that if yields stayed at current low levels, it could threaten the existence of pension funds with high capital requirements related to customers with yield guarantees.
Managing Director Cristina Lage said: "We are not in that situation, but of course we are following developments day by day, and are ready to act if necessary.
"This could be by decreasing our equity investments a little in order to take the top off our risk," she said.