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Danish roundup: AP Pension, PensionDanmark, FSP, LD

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DENMARK - AP Pension is to cut the account dividend it pays customers to 3.25% to comply with government’s pensions pact.

The payout, which takes effect next month, is lower than the current dividend of 4.7%, but still well above the 2% limit imposed by the pact.

Chief executive Søren Dal Thomsen said: “We have chosen to reduce our account dividend in response to the agreement between the pensions industry and the ministry of business and growth.”

The agreement sealed in June contained a package of measures designed to relieve the pressure on pension funds battling to comply with official reserve requirements, which rose sharply as long bond yields fell.

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The yield curve used to calculate reserve requirements was altered, but, at the same time, pension funds were told to keep account dividends at 2% or less to consolidate resources.

Dal Thomsen said that, with a deposit interest rate of 3.25%, the company was still acting on the cautious side.

But AP Pension supported the intentions of the agreement not to compete for the money freed up by the reduction of the yield curve, he said.

“As a customer-owned company, we see it as our main task to maintain the balance between the reserves we have built up through high returns, and the account dividend we give to customers,” he said.

AP Pension’s reserves were currently around 14%, so the 3.25% bonus rate was appropriate, he said, at the same time as complying with the intentions of the agreement.

In June, Dal Thomsen had said AP Pension would fight to be allowed to give an account dividend for more than 2%.

Meanwhile, PensionDanmark reported a doubling of its investment return in the first half of this year.

The pre-tax return for the first six months is DKK5.1bn (€685m) compared with DKK2bn for the same period last year.

In percentage terms, customers are receiving returns of between 3.1% and 4.9% depending on the age-linked pool.

By the end of August, this range had increased to 5.6-8.3%, the fund said.

Chief executive Torben Möger Pedersen said: “Despite the difficult market conditions, we achieved a very good return in the first half, and it has been lifted further in July and August.”

The first part of the year was dominated by the European debt crisis and signs of economic slowdown in China and the US, he said, with significant market turbulence seen in May and June.

PensionDanmark said it had continued its efforts to increase investment in alternatives such as property and infrastructure, and had become the first institution in Europe to embark on large-scale buying of long-term loans from European banks.

Membership increased by more than 3,000 in the reporting period to 621,000, and assets under management rose by DKK7bn to DKK129bn.

In other results news, financial sector provider FSP said its profit of DKK113bn gained in the January to June period had bolstered its capital base ahead of the merger with the larger AP Pension.

The profit increased FSP’s capital base to DKK1.4bn at the end of June, which was more than DKK1bn above the red risk level of the Danish FSA (Finanstilsynet), as well as the individual solvency requirement, it said.

This meant FSP was entering the merger with AP Pension as a well-consolidated pensions business, the provider said.

The merger is expected to receive official approval at the end of September, FSP said.

The investment return for traditional with-profits pensions was 5% in the first half, compared with a 1.5% loss in the first half of 2011.

The unit-link product FSP Vælger produced returns of between 3.7% and 5.6%.

A good investment return, gains from hedging against falling interest rates and the positive effect of the new yield curve used to calculate official reserve requirements had all contributed to the net result for the first half, it said.

Negative factors included the need to increase pensions reserves because of the continuing fall in interest rates, the provider said.

Total assets rose to DKK23.4bn at the end of June from DKK23.6bn at the end of last year.

Lastly, pension fund LD reported an investment return of 4.3% for January to June, after a loss of 0.2% in the same period last year.

The return for the balanced unit-link investment option LD Vælger - which accounts for 92% of assets - was 4.1%, with quoted shares producing a 10% return, bonds 2.3% and corporate bonds 5.2%, LD said.

Investments in private equity and property ended the six-month period with a loss of 1.7%.

LD said the return on the total portfolio was slightly lower than the benchmark return, but that it had opted to reduce risk since the start of the year by bringing its equities allocation down to a lower level of that contained in the index used for comparison.

Total assets were DKK51.7bn, up by DKK100m from the end of last year.

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