DENMARK - A major Danish pension fund is reducing expected pension income for members, as it and other funds react to the regulator's demand for longevity-related adjustments.
"Rising longevity and low interest rates mean that expected pensions will be smaller," said Industriens Pension in a statement. The labour-market pension fund covers the industrial sector and manages DKK89bn (€11.9bn) of assets.
Members starting to receive a monthly old-age pension in future would receive compensation for the lower income in the form of an unguaranteed pensioner's bonus, it said.
The plan was to provide this compensation until the pension, which is based on the general interest rate, rose to its pre-reduction level, it said.
However, the changes would not affect members receiving their pension as a lump sum, nor those already in receipt of pensions, it added.
Rising life expectancy was one reason behind the changes, Industriens Pension said. The other trigger was that "the authorities have stipulated that the rate of interest pension firms use to calculate expected pension may only be based on a rate of 1% a year."
The Danish Financial Services Authority (Finanstilsynet) wrote to all Danish pension providers earlier this month introducing a new supervisory regime for mortality assumptions.
The new regime is based on a benchmark for observed mortality rates as well as a benchmark for expected future development in life expectancy. Pension providers were asked to compare themselves against the benchmarks, and results of their comparison to the FSA by July 1, 2011.
Most pension providers are expected to have to make some adjustments.
PensionDanmark has responded by saying it already took account of increasing life expectancy in the calculation assumptions of its pension scheme.
"Forecasts for the size of pensions takes account of the fact that each generation can, hopefully, expect to live longer," said managing director Torben Möger Pedersen.
PenSam said it is already prepared for the rise in longevity in Denmark, and as a group had set aside an extra DKK1.5bn to secure pension payments.
ATP announced last week that it was setting aside an additional DKK23bn for future pensions payments after adopting its own new longevity model, which took account of projected future increases in life expectancy.