DENMARK - Denmark’s Unipension has ruled out imposing withdrawal penalties on its with-profits pension scheme, even though the downturn in stock prices has prompted other pension funds to introduce the protective measure.
Unipension’s chief actuary Steen Ragn said: “The pension funds are rock solid, and we don’t need to activate a withdrawal penalty. Even with the fall in share prices we have seen in the course of 2011, we are not near a situation where that is necessary.”
The pensions company’s business model, which built up a high level of solvency, was designed to take account of this kind of swing in the market, Ragn added.
Unipension is the joint administration company for three professional pension funds - the Architects’ Pension Fund (AP), the Pension Fund for Danish MAs, MScs and PhDs (MP) and the Pension Fund for Agricultural Academics and Veterinary Surgeons (PJD). It manages assets of DKK80bn (€10.7bn).
A withdrawal penalty is a temporary measure introduced by some pension providers on with-profits schemes to deter members from transferring savings out of the scheme at a time when the stated level of individual savings may lie below the actual market value of the assets.
Elsewhere in the Danish pensions sector, withdrawal penalties stood at between 2% and 5.6%, Unipension said.
It said this meant scheme members stood to lose as much as DKK56,000 of every DKK1m they had saved.
The pension funds’ solidity was based on the flexible pension scheme with no yield guarantees, which the vast majority of members had chosen to switch to, the company said.
This had given the funds a high degree of freedom to stick to their chosen courses, it added.
At the end of June, the capital strength of AP, MP and PJD - indicating how many times capital outweighs the legal requirement - was 7.7, 6.2 and 7.3, respectively, Unipension said.
In other news, the Pension Fund for Pharmaconomists (Farmakonomer) made a loss for the first half of this year on a negative investment return, but described the result as acceptable.
In its interim report, the fund said: “A negative result as shown in the first half is in principle not satisfactory but is acceptable under the given market conditions.”
The investment return for the period was -0.01%, or DKK396,000 in absolute terms, down from a profit of DKK519m in the same period a year earlier.
The fund made a net loss of DKK71m, after covering part of the loss with DKK50m from the individual bonus potential. This compares with a profit of DKK19m in January to June 2010.
The biggest risk in the second half is whether the negative development on capital markets continues for the rest of the year, the fund said.
“The pension fund’s investments are determined by an asset allocation model that tries to mitigate big fluctuations in shares and bonds,” it said.
“However, the extent to which the model can cushion a situation is limited when the value of shares and bonds move in parallel instead of in opposite directions as they normally do.”
At the end of the first half, the pension fund was within the Danish FSA’s ‘green light’ scenario of its solvency risk model, it said. Total assets dipped to DKK8.49bn from DKK8.64bn.
Finally, the Pension Fund for Chemists and Pharmacists (Apotekere og Farmaceuter) made a net loss of DKK3.6m for the first half, on top of a pre-tax investment loss of 0.6%.
The fund, which is administered alongside the larger Pharmaconomists’ fund, said this net loss came after DKK7.9m had been transferred from the collective bonus potential, as well as after a loan of DKK3.1m from the individual bonus potential.
In absolute terms, the investment loss for January to June 2011 was DKK3.1m, compared with a profit of DKK60m in the same period a year earlier.
The fund’s net profit for the first half of 2010 had been DKK25m.
Total assets grew slightly to DKK1.003bn from DKK996m.