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Danish roundup: Discount yield curve, PFA Pension, PensionDanmark, ATP

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  • Danish roundup: Discount yield curve, PFA Pension, PensionDanmark, ATP

DENMARK - The Danish government and pensions industry association F&P have agreed to simplify the new discount yield curve for calculating pensions reserve requirements.

The ministry of business and growth said: "The alteration - which only has a modest significance for companies' calculation of their reserve needs - will improve firms' management of exposure risks. At the same time, the discount yield curve will become simpler."

In December, the FSA acted to break a spiral arising from falling Danish government bond yields relative to German yields by introducing an alternative discount yield curve for pension funds to use.

Funds had been seeing reserves depleted by the unusual market situation.

This new yield curve was based on a 12-month moving average of the yield differential between Danish and German government bonds.

The latest change is aimed at reducing complexity, the FSA explained.

What is changing is the technical calculation of the mortgage credit add-on to the discount yield curve, which was originally set out in the October 2008 pensions package.

Following the change, the mortgage credit add-on will be calculated as half of the option-adjusted yield differential between Danish mortgage bonds and the Danish swap curve, the ministry said.

It also said it also agreed with F&P that they should look in more detail at the longer-term need to adjust the current discount yield curve in the light of the new EU regulations.

In other news, PFA Pension has won a group pensions contract from the Danish Union of Librarians, beating the current provider Sampension in the tender.

The deal will see PFA managing an annual DKK140m (€18.8m) of pension contributions from the trade union's members, and the potential for as much as DKK1.8bn in pension deposits to be transferred to its management.

The union said: "In connection with the decision to change pensions company from Sampension to PFA Pension, the board valued the fact that PFA Pension has many years' experience in prevention schemes and active claims handling, as well as a focus on giving personal advice.

"Altogether, these are elements that will benefit members."

The union had had a good, long cooperation with Sampension, it said, and added that both Sampension and PFA Pension had put forward economically advantageous bids in the tender.

The contract includes 2,700 of the union's members.

The librarians' union has opted for PFA's unit-link pension product PFA Plus, the company said.

PFA already has group pension contracts for around DKK4bn a year.

In other news, PensionDanmark suggests that small pension pots of less than DKK20,000 should be automatically transferred to ATP.

Denmark's pensions industry has been grappling with the issue of what to do with the many small paid-up pension plans that exist.

This year, F&P introduced a two-year period of fee-free transfers of small pensions to allow individuals to consolidate the often forgotten savings.

Several pension funds have confirmed they will transfer such pensions without charging, during 2012 and 2013.

Torben Möger Pedersen, managing director at PensionDanmark, said: "We suggest an ATP solution. Pension companies would subscribe to a system where small, dormant pensions at individual companies were moved to the employee's account at ATP.

"ATP accounts follow employees throughout their lives, so this solution could save many people a lot of unnecessary administrative costs."

If the suggestion was implemented, the companies should be able to sign up voluntarily, he said.

"But, for us, it is important that the pension systems supports mobility in the labour market, and that requires practical and simple solutions such as this," he said.

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