DENMARK - Two Danish pension funds have confirmed the interest rates on customers' pension accounts will be cut to 2.5% in 2009.

The DKK71.4bn (€9.58bn) PensionDanmark and the DKK49.3bn Industriens Pension have both revealed in light of the market turmoil and the agreement between Forsikring & Pension (F&P), the Danish Insurance Association, and the government, it will cap interest rates to help market stability. (See earlier IPE article: Denmark agrees pensions solvency rescue package)

PensionDanmark, which has over 540,000 members in private and public sector companies, said its investment diversification and a reduction in its equity allocation in 2007 meant its solvency remains in the 'green light' of the Danish traffic light system at more than four times the statutory requirement.

However, it admitted despite its cautious approach, latest figures show its investment returns at the end of November was -10% after tax, following continued uncertainty and volatility in the markets.

The pension company added following the agreement in October between the government and F&P, and "in light of the negative investment returns", the board of PensionDanmark had "decided to lower the provisional account rate from 6% to 2.5%, after tax, from 1 December 2008.

The company stressed although members will continue to receive the same monthly retirement pension benefits, they are guaranteed, while the insurance part of the pension fund - additional lump sum death benefits and one-off critical illness payments - will also be unaffected.

In addition, Industriens Pension, which has around 350,000 members, also revealed its account interest rate - the level at which members savings are remunerated - will fall from 6.5% to 2.5% starting on 1 January 2009.

Erik Adolphsen, chief executive of Industriens Pension, said: "With the decision to give 2.5% of the account interest rate in 2009, we respect the agreement on financial stability the pension sector has reached with the Economic and Business Affairs Ministry."

The announcements by PensionDanmark and Industriens Pension follow earlier confirmation by Danica Pension that it will cut its interest rate to 1.5% in 2009, while F&P warned pension members the market problems could result in pension interest rates falling below 4%. (See earlier IPE articles: Danica to cut pension interest to 1.5% in 2009 and Danish pension interest could fall to 4%)

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email