DENMARK - ATP, Denmark's largest pension scheme, has set aside an extra DKK28bn (€3.76bn) to help it deal with low interest rates.
"The historically low interest rate today entails that we must set aside an additional DKK28bn so that also in the future we can fulfil our role in the pension system" said chief executive Lars Rohde.
Increased life expectancy has forced the plan to put aside an additional DKK2.4bn. It said that based on interest rate and price levels prevailing at the end of 2004, that it expects a market return on investments of 5.9% for 2005.
ATP reported an overall result before bonus of DKK 5.7bn for 2004. It said the results reflect two opposite trends - the fall in interest rates, which hit reserves, and the equity market, which was “positive”.
The scheme made a 19.9% return on investments, or DKK49.3bn, last year.
Despite the DKK28bn provision, the return on investments enabled ATP to strengthen its reserves by DKK5.2bn.
"The very satisfactory return on investments means that ATP pays a tax on pension savings returns of DKK 6.9bn," ATP added.
It said that the DKK45.6bn Special Pension Savings scheme, or SP, returned 9.4% - which will mean that clients will typically have their pension savings revalued by 8.1%.
ATP set up "a new dynamic principle” of managing its asset allocation in 2004. It has set an upper and lower risk limit for the portfolio allocation, reducing or increasing equity allocation as risk changes.
It said it used equity options during 2004 for actual portfolio management and thus expects to achieve a more efficient portfolio management.
It increased its equity exposure target from 15% at the beginning of 2004 to 20% in the course of the first six months of 2004 - with the bond allocation target cut from 77% to 73%.
It said that based on interest rate and price levels prevailing at the end of 2004, that it expects a market return on investments of 5.9% for 2005.
It said: "After two years of healthy returns on the equity markets bolstered by the economic developments, 2005 is likely to become a more difficult year. Lower growth in earnings and a low interest level will entail that equity markets must also expect more moderate returns in 2005 compared with the two preceding years. The returns will be single-digit at best."