Denmark examines scheme democracy
Kirsten Fjord has been given the role of leading the national debate in Denmark on greater pensions scheme democracy and tran-sparency for members. She has been appointed chairman of the Pensions Market Council, recently set up by the government to consider these issues.
The council follows an earlier official committee report over a year ago looking at the question of great-er member representation in country's labour market schemes.
Fjord, who is a senior finance ex-ecutive at TeleDanmark, has had no direct pensions involvement.
Her starting point is the financial power of pensions schemes, which now own a third of Danish equities and bonds and control assets eq-ualling one year's GDP. But the individual members are not involv-ed in this and that is a big problem," she says.
At member level, she thinks there are "good reasons for more dem-ocracy" pointing out that: "Scheme members are forced to place their money into certain schemes and under our system they bear the risk of development of their pension. In principle they do not know what is going to happen to that money." One of the keys is greater transparency. Members should be giv-en the means to assess their own situation in comparison to others. "If their savings are not developing as well as others, then there will be pressure on the system."
Here she sees a role for the "key figures" issued by schemes and in-surers to provide better information about schemes. But the number of figures being presented to members are confusing rather than helpful, and should be simplified.
She wants members to be more involved "in pensions funds investment policies, the strategies they choose, and their implications for profits and risks. Pension funds should do follow-ups on their investment strategies, enabling members to see their results".
On the question of democracy, Fjord acknowledges that the picture is quite diversified among schem-es, with a range of representation within pension schemes, but little within insurance companies who run a large number of employer schemes. "If it is up to the individual member to be involved in their own scheme, we shall have to go the direct democracy route."
This means giving members choices and equipping them to make them in an informed way. "They should be allowed to decide how their pension is managed." The concept of establishing different pools within the funds is worth pursuing, arguing that where members have to make a choice, then they will be involved. Though this is ex-plicitly outside the council's remit she would eventually like to see some competition between pension funds whereby people could move between schemes,without changing jobs.
The system, she believes, could be freed up to let those retiring choose between having a lump sum and annuity payments.
She rejects arguments that people would squander the lump sum: "I find such an attitude reflects the view that people are incapable of managing their own affairs." The right incentives have to be created. Fjord points to how the home loan market changed from being an in-flexible producer-controlled system with no consumer involvement to an active and competitive market where buyers know and seek best rates constantly. The question she is putting is whether this can happen to pensions.
The council, which meets four times a year, will present an annual report to the government. It has 14 members, including representatives from the pensions associations. Jens Tranberg of AMPR, the Federation of Labour Market Pensions, who is a council member, says he is unable to talk about scheme democracy and other is-sues. "We have agreed in the council that our discussions would not be discussed through the press." But he stressed that pension schemes would not agree to any arrangement which would result in lower pensions to their members than the existing system.
"On the question of transparency, Tranberg says: "it is in the interest of both schemes and members to have as much transparency as possible."
At labour market scheme PKA, with 120,000 members, chief executive Bent Jurgensen, says the earlier committee report said that member influence was something that was impossible to legislate for. "This has to be decided within each institution" he says. The report also said that "member influence is at a very high level in pension funds".
Jurgensen felt it would be impossible to increase the level of individual choice when it came to investments. "You cannot have a choice when it comes to investments for individual members. Investments are taken care of on a collective basis. I think that gives the best results and lowest costs. To allow people to decide for themselves makes it impossible for the pensions institution to guarantee the benefits. If I have to guarantee the benefits to the member, then I must have responsibility to make the investments.""