DENMARK - Danish pension funds produced average net returns of 7.9% on their traditional with-profits pension products in 2011, despite the big price swings seen on European stock markets during the year, industry association F&P reported.

The returns were particularly due to good profits on bond holdings, it said.

Carsten Andersen, deputy director of the association said: “Danish pension companies were able to produce good results in a difficult period, which was marked by great uncertainty on investment markets as a result of the financial crisis.”

While bonds and real estate investments in the with-profits plans both produced solid returns, equities ended the year with a loss of 4.8% on average, F&P said.

Most of the equity losses were from European shares.

On average, between 2007 and 2011, Danish pension companies made an annual return of 4.2% on the products, F&P said.

The association said the level of return seen on the products last year was good news for Danish pension customers, but that the current low level of bond yields was putting pressure on guaranteed yields.

At the same time, future regulations on capital - such as Solvency II - meant companies might still need to consolidate.

“The high return therefore helps to ensure guaranteed yields can be maintained,” Anderson said.

Returns for unit-link pension products varied widely, depending on the risk profile of the individual plan.

Products with a high proportion of equities made a loss.

More pension provisions are now placed in the newer unit-linked pensions, according to F&P.

At the end of 2011, 23% of provisions were linked to these products, up from 16% in 2010.

In other news, figures from ATP show that private pension saving in Denmark has cut the proportion of pensioners relying on statutory payments to 45% from 56% in the decade to 2010.

ATP, which runs the labour-market supplementary pension scheme, said the outcome of the 1987 Common Declaration - the three-party agreement meant to ensure labour-market pensions for all - was slowly feeding through.

In 2010, 45% of Denmark’s newest pensioners received only the state old-age pension and the ATP pension, compared with 56% in 2000.

Ole Beier Sørensen, chief analyst at ATP, said: “The development is an important and very positive one, which strengthens the sustainability of the pension system, as well as ensuring more adequate pensions for broad groups of people.”
The proportion had fallen because groups of people had begun to receive money from a labour-market pension scheme for the first time.

This was the case for hourly-paid workers within the industrial, construction, trade, transport and service sectors, who were included in the new labour-market pensions in 1990.

As private pension schemes gradually matured, they would become more important in the overall pensions picture, ATP said.

At the moment, two out of every three kroner of pensions received comes from the state old-age pension and the ATP pension, with labour market and voluntary pensions making up the rest.

But Beier Sørensen said this would change in time.

“In the long term, private schemes will constitute a more effective supplement to the state old-age pension and ATP and account for around half of total pension payments,” he said.