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Danish roundup: PFA on regulatory change, LD results

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  • Danish roundup: PFA on regulatory change, LD results

DENMARK - Lawmakers in Denmark should stop changing pensions legislation, as the resulting uncertainty could undermine economic growth, PFA has warned.

Henrik Heideby, chief executive and group head at commercial provider PFA, said: "Danes have had enough of changes to pensions conditions.

"There is a need for peace now, so people can get used to the new rules. That goes for pensions taxation, the retirement age and early retirement pension conditions."
 
In a PFA poll, three out of four Danes feared parliament would impose further cutbacks through pension rules within the next two years, he said.

Four out of five believed politicians should leave pension savings alone.

"So there is not much confidence that conditions surrounding pension savings are firmly fixed, even though by far the majority want them to stay unchanged," Heideby said.

This uncertainty made people worry, he said, and pension savings and pension conditions were generally one of the most important elements giving security to family finances.

"If people aren't secure about this, then they don't have economic security," he said.

"It's hard to rebuild consumer confidence - which is a prerequisite for economic growth - if consumers can't have confidence in that significant part of their finances to do with pensions."

Cutbacks had been introduced in the early retirement pension system, and tax rules on contributions to annuity pension schemes (ratepension) had also been tightened, he said.

The government has also increased the tax on pension returns (PAL tax) and announced that the tax deduction for investment costs would be abolished.

"That is a lot of changes to pensions in a short time," Heideby said.

PFA noticed the effect this was having on its customers, he said, with the rate of pension queries by phone increasing by around 20% since the beginning of the year.

"Society needs more people to be able to look after themselves with their own pension in the future because there will be more pensioners and fewer people of working age," he said.

"Every time private pension terms are reduced, society's future welfare burden increases."

In other news, investment returns slimmed to just 0.7% last year for LD's main pension product, with a strong bond result only just making up for equity losses.

The investment return in the LD Discretionary Investments (LD Vælger) product was 0.7% before tax, down from the 12% reported for 2010.

Dorrit Vanglo, director at the pension fund, said: "A return of 0.7% is clearly at the low end of what we usually deliver.

"Visibility has been incredibly low on the financial markets in 2011, and, seen in that light, it is satisfactory that we have been able to keep members' pensions intact."

The LD scheme is run on a unit-link basis. More than 90% of assets are invested via the LD Discretionary Investments managed product, with the rest invested in various self-select investment pools.

Vanglo said that, over the last three years, assets in members' accounts have grown by 8.4% a year on average - faster than savings in most other pension schemes.

However, the outlook on the financial markets was now brighter than a few months ago, she said.

"In the course of the first month and a half, we have produced a higher return than in the whole of 2011," she said.

LD said its significant holdings of gilt-edged bonds produced a return of 7.9% last year, helped by falling interest rates, which led to higher prices for mortgage and government bonds.

Equities made a 9.3% loss, including currency hedging.

Within this, global shares in developed countries ended the year with a return of zero, but shares in Denmark and emerging markets dragged LD's overall equities return lower.

Total member assets under management rose to DKK51.6bn (€6.9bn) at the end of 2011, down from the DKK54.6bn reported the year before.

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