Danish pension funds unfazed by turbulence in equity markets
DENMARK - Tumbles in share prices seen around the world over the last fortnight will have little impact on long-term pension savings, Danish pension funds said as they moved to allay customer fears.
AP Pension - one of the country's main commercial pension providers - said overall market conditions meant gains had outweighed losses.
Managing director Søren Dal Thomsen said: "Price falls on equities markets in July have not hit AP Pension particularly hard."
In fact, profit had risen since the half-year reporting stage because of AP Pension's high level of hedging against declining interest rates, he said.
"The answer is that we have earned more from the fall in interest rates (bond yields) than we have lost on shares," he said. "In the five yield groups, in the year to date, we have made profits of between 5.3% and 7.1%."
Unipension, which manages three professional pension funds, said the market turbulence threatened neither members' individual pensions nor the funds' solvency levels.
Managing director Erik Adolphsen said: "The pension funds under Unipension have the capital strength to manage much greater share falls than those we have seen up to now."
Also, since pensions were based on the average interest rate (with-profits) principle, whereby profit swings were smoothed out over time, scheme members would not notice individual bad years, he said.
However, with an equities allocation of around 35%, Unipension did have a relatively high stocks component, and this was naturally attracting losses at the moment, he said, adding that, on the other hand, the funds were gaining on their bond holdings.
In the year up until yesterday morning - including trading in US and Asia, but not in Europe - returns for Arkitekternes Pensionskasse, MP Pension and PJD were -1.75%, -0.91% and -1.88%, respectively, Unipension reported.
Adolphsen said: "We have had a few years with very good returns, and so we have the capital strength to bear both current and future solvency demands."
The DKK54.6bn non-contributory LD pension fund (Lønmodtagernes Dyrtidsfond) reassured scheme members that its main fund choice was heavily invested in gilt-edged bonds.
It said: "Almost half of the assets in LD Vælger are invested in gilt-edged property-backed or government bonds, and these investments have generally done well in the turbulence on stock markets in August."
Just under one-third of assets were in quoted equities, which had been hit by big price falls in both Denmark and abroad.
Bond investments had been unable to offset these falls completely, but had largely limited the losses, it said.
Meanwhile, PKA, the administration company for eight Danish labour-market pension funds, said it was still safe and had no problems.
It said: "Pensions at PKA are set up to withstand turbulence on the financial markets, as we are experiencing now. PKA continues to be economically secure and has no problems.
"PKA is still in the Danish FSA's (Finanstilsynet's) 'green risk scenario' and has a solid enough economic basis to handle the current swings on the financial markets."
It stressed the broad diversification of its investments.
"PKA's investment strategy means we invest both globally and regionally, within many different sectors and in a wide range of assets including shares, bonds and property," it said. "This is done to get the best possible return, while at the same time we try to get the broadest possible spread of risk with PKA's investments."
Teachers pension fund Lærernes Pension told members there was no reason to panic, emphasising profits on government bonds issued by Germany, as well as its avoidance of those from southern European states.
Managing director Paul Brüniche-Olsen said: "As always, we have a good spread of investments, so even though there have been big losses on shares recently, overall we have only seen a minor loss.
"This is partly because we have gained on our investments in, for example, German government bonds. Also, we have avoided investing in risky southern European government bonds."
Lærernes Pension expects to maintain the account dividend of 3.75% after tax, which has been set for 2011, Brüniche-Olsen said.
He also pointed out that the schemes were built on the with-profits principle, which meant the fund's buffers would take the impact of the financial markets, leaving members unaffected.