PFA, Denmark’s largest commercial pensions provider, has lost a legal battle with the financial regulator the Danish FSA (Finanstilsynet), which ordered the company to stop funding commercial discounts with collective reserves.
The Ministry of Business and Industry’s Commercial Appeal Board (Erhvervsankenævnet) upheld the Danish FSA’s order against PFA Pension, re-affirming that the company could not use collective special bonus reserves to cover commercial discounts for new and existing customers.
The FSA’s order had been made in June 2013.
The regulator said at the time PFA had acted contrary to the requirement of fairness in section 21 of the Financial Business Act.
PFA said last year in response to the FSA ruling that the judgment had been based on a misunderstanding of the factual and legal conditions.
Its then chief executive Henrik Heideby said no customers had been deprived of any value and that PFA’s was a benefit to all customers, citing economies of scale.
PFA said it took note of the appeal board’s decision.
Jon Johnson, the company’s interim chief executive, said: “PFA has already arranged its future business from the 2013 annual accounts onwards in such a way that neither existing nor future customers will notice any difference.”
He said PFA would continue to be able to offer existing and future customers conditions that were competitive in the market, and added that all existing agreements would be respected.
In other news, Danish pensions administrator PKA has reported a provisional return on investments for 2014 of 10.9%, with fixed income returning 18.1%.
PKA, which manages three labour-market pension funds in the health and social care sectors, said all asset classes contributed positively to the annual return.
Peter Damgaard Jensen, chief executive, said: “2014 was in many ways an unusual year for PKA. We are therefore particularly pleased we managed to make a very high return for our members’ pensions and so ensure that PKA remains very robust.”
In September, PKA said it had been forced to write down the value of its private equity investment in tyre-recycling company Genan by about DKK750m (€101m) in the first half of 2014.
The company had got into serious financial difficulties, which surfaced earlier in the year.
In absolute terms, PKA said its provisional return for 2014 was DKK19.6bn.
The return of 18.1% for bonds and other interest-bearing investments was due in particular to falling interest rates and investments in Southern European countries, PKA said.
Listed equities generated 11%.
Alternative investments produced a return of 6.8%, it said, adding that, within that, absolute return strategies and the property portfolio returned 8.7% and 7.4%, respectively.
Meanwhile, commercial pensions provider Skandia Denmark has tripled the withdrawal penalty rate that currently applies to its with-profits pension product.
The imposition of a withdrawal penalty on a pension product usually suggests the market value of investments has fallen below customers’ stated level of savings.
The penalty on withdrawals from or transfers out of the Skandia Bonuspension with-profits product – which includes an element of guaranteed return – has been hiked to 2.8% from the current level of 0.9%, with effect from January 14.
However, Skandia said it would pay the withdrawal penalty itself on behalf of customers choosing to move their pension savings to a Skandia unit-link product.
Skandia explained that it was obliged to put money aside to make sure there were enough funds available to administer customer savings in the product.
“The latest calculations show there is a need to set more money aside than there was previously,” the company said.
The increase in the withdrawal penalty was a consequence of the historically low level of interest rates, it added.
It said it had nothing to do with investment return but was primarily a result of the company’s changed expectations about how much it would cost to administer the product in future.