Denmark outlines minimum standards for basic labour-market pensions
DENMARK – The Danish government has outlined a new set of minimum standards for basic labour-market pension products, and made clear that schemes falling short of the benchmark will have to explain why.
A committee of the Money and Pensions Panel – a consumer-interests panel under the auspices of the Ministry of Business and Growth – has published eight standards a basic pension should meet.
The requirements focus on investment policy, clarity of member communication, costs and insurance cover, and are to be seen as a benchmark for providers, according to the committee's report.
The committee was tasked last year with defining a standardised 'basic pension' – a mandate, the panel said, that was based on the challenge that many Danes do not want to make choices about their pension and life insurance.
Torben Andersen, chairman of the committee and professor at Århus University, said: "Labour-market pensions have a particular responsibility – they are mandatory, and, therefore, they should be the automatic solution most members can count on to give them a reasonable pension."
The committee said it must be easy for members to understand the insurance and pension cover they have, and that investment policy must ensure a high return with a risk profile taking account of a member's age.
Pension payments should be on a lifelong basis, rather than for a lump-sum or limited term.
The purchasing power pattern of a pension should be made clear, and schemes should include disability, illness and life insurance, with the cost of this not more than 20% of contributions.
Conditions for granting and paying pensions and for insurance cover should correspond to conditions for state benefits, and costs should be significantly lower than those for individual and voluntary schemes.
The reporting of investment performance, the cost of insurance cover and costs must be done in a comprehensible way, according to the requirements.
Rather than specify investment and payout ratios in detail, the committee opted to highlight general principles of a basic pension because there were differences in the memberships of individual pension institutions.
The report said: "It is part of good management for all pension institutions to consider the extent to which the basic pension offered to members meets these principles, which are to be understood as a guide to minimum requirements.
"There may be reasons for deviations from these principles, but they should in that case be explained and justified."
Other members of the five-strong committee included Unipension managing director Christina Lage, PKA senior consultant Peter Melchior, PensionDanmark managing director Torben Möger Pedersen and Lars Rohde, chief executive of ATP.
Commenting on the new requirements, Melchior said it was important that basic pensions provide lifelong payments.
"Society cannot be served by having a proletariat of older people who have no money because they have used it up in 10 years – and this serves individual pension savers even less," he said.