DENMARK – Danish pensions company PKA has said it managed to reduce the impact of rising yields on first-half results by reorganising its bond portfolio and focusing on alternative investments.
In its interim report, PKA said its overall investment return for January to June was 0.3%, down from the 7.6% return for the same period a year earlier.
Equities produced an 8% return.
The company said: “During the period, PKA reduced the negative effect of rising yields by reorganising the bond portfolio to be less sensitive to interest rates.”
At the same time, it focused on alternative investments such as property, infrastructure and absolute return strategies, which were less dependent on interest-rate developments and the financial markets.
PKA said its portfolio of European government bonds, excluding Northern Europe, had again produced a good return in the first half.
Peter Damgaard Jensen, managing director of the company, which manages five Danish pension funds, said: “It is clear this is far from the great annual result of 2012, but we must recognise the financial situation is completely different this year.”
Returns started to improve in the second half of the year, PKA said, with investments producing 1.6% by the end of July.
Meanwhile, PensionDanmark has said it expects no “big problems” for its ongoing construction projects after one of Denmark’s oldest contracting companies, E Pihl & Son, filed for bankruptcy.
The DKK139bn (€18.6bn) labour-market pensions provider said it had two construction projects where E Pihl & Son acted as turnkey contractor – the Kanalfronten residential development in Vejle harbour and the UN City development in Copenhagen.
PensionDanmark said it took over Kanalfronten during the summer, and that the outstanding improvements had already been finished.
“Therefore, [the] bankruptcy is immaterial for this construction,” it said.
As far as the UN City development is concerned, major problems are not expected as a result of the company failure.
“City & Port Development – the project’s developer – is currently looking into the consequences more closely and expects to give a status report within a week,” PensionDanmark said.
In other news, industry association Forsikring & Pension (F&P) warned that Denmark was only able to keep its budget deficit on right side of the EU limit because it of advance pensions taxation, which it said lent a false sense of security.
Per Bremer Rasmussen, managing director, said: “It is only because of the pensions tax that has been brought forward that the deficit can be held within the EU’s demand.”
In its recently submitted budget proposal, the government estimated the deficit at DK38.5bn for 2014, or 2% of GDP – within the EU limit of 3%.
But this has only been possible with the help of advance taxes on pensions, which should have been paid in 20 or 30 years’ time, F&P said.
The overhaul of lump-sum pensions (kapitalpensioner) in 2013-14 gave the state extra temporary income of DKK20bn, and the ceiling on payments into fixed-term pensions (ratepensioner) from 2010 and 2012 contributed with an extra DKK7bn a year, the association said.
“Bringing tax on pensions forward does not give revenues a lasting effect,” Bremer Rasmussen said.
“And the corollary to pension tax receipts being brought forward is that they will be lacking in the future, when the number of old people will be significantly higher than today.”
This, he said, gave a false sense of security.