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Denmark's DKr250bn ATP fund set for overhaul

DENMARK – The government has accepted in full a draft bill for amendments to the DKr250bn (e33.5bn) Danish supplementary income based pension scheme ATP.
The two main points of the reform are the lowering of the scheme’s guaranteed rate of interest and the introduction of age-biased contributions.

The guaranteed long-term rate of return after tax and inflation has been lowered from 4.5% to 2%, in line with the current maximum rate for life assurance companies and pension funds.
The main reason for this, says the fund, is the third EU life assurance directive, aiming at ensuring uniform competitive conditions in the market.
The ATP administration also argued that as the benefits should track wages and salaries, it could not maintain the higher rate of guarantee.

The new system will also eschew the built-in social contract between generations, meaning that today’s contributing members will not enjoy a period of “under-contributing” to their pensions as older generations have.
This will be balanced by a long-term bonus policy based on a prudent basis of reserves, calculated at a rate of interest of 3.5%, says ATP.

Also, due to the drop in the interest rate guarantee, survivor’s benefits will decline severely for participants who have not been in the scheme for very long.
The gap depending on age, says the fund, will be closed by considering death as an insurance event and giving dependants increasingly equal rights.

ATP was established in 1964 as a supplement for employees to state-funded old-age pensions.
Over the years, however, everyone with an income has been covered, including those on unemployment and sickness benefits.
Due to the increasing number of collective occupational pension funds in the Danish labour market there is a growing demand for ATP to ensure that financially disadvantaged groups will also get their share of the growth in pensions in the coming years, says the fund.

The ATP fund has around DKr250bn of assets under management. A majority of its assets (39%) are invested in Danish fixed income and 22% in domestic equities. Almost a quarter (23%) of ATP’s assets are exposed to international, mostly EU and US, shares and 10% in foreign, mainly German and US, bonds. the rest is invested in land, real estate and other loans.

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