Two Danish pension funds have lost the latest round in their fight to switch all members to market-rate pensions from the traditional average-rate product without first getting individual consent.
The Danish Commercial Appeals Board (Erhvervsankenævnet) has ruled against AP (Arkitekternes Pensionskasse), the pension fund for architects, and PJD (Pensionskassen for Jordbrugsakademikere & Dyrlæger), the pension fund for agricultural academics and vets, making such a change based solely on an overall member vote – backing the Danish FSA’s earlier decision.
Both pension funds, which are run by labour-market pensions firm Sampension, announced the defeat on their websites.
AP wrote: “The work to transition to a new and modern market-rate product for pension fund members has been ongoing for a few years, and the board would like to have offered a collective choice to change last year.”
However, this was refused by the Danish FSA, it said, adding that the supervisory board did not agree with this and referred it to the Ministry of Industry, Business and Financial Affairs’ Commercial Appeals Board (Erhvervsankenævnet).
“Now, the Commercial Appeals Board has made its decision, and it does not advocate a collective transition to market interest rates,” AP said.
Cecilie Therese Hansen, chair of AP’s supervisory board said: ”The decision was primarily based on the fact that although the transition is sensible and will entail a number of benefits for the members, the FSA and the Commercial Appeals Board did not believe that the transition was necessary in relation to the members’ interests.”
AP said that since the ruling was largely based on the necessity of the change, it did not alter the assessment that a transition to market rates would create added value for scheme members.
The fund said the supervisory board would decide at its next meeting in August whether the case should be appealed, and how a market-rate pension scheme should be offered on the basis of individual choice.
“If necessary, a decision on offering members the option to make an individual choice to change will be taken at an extraordinary general meeting which is expected to take place by the end of 2020,” AP said.
AP and PJD have now both decided at their 2020 annual general meetings to offer all new members a market-rate scheme, with PJD having done so on Monday, following AP’s member vote at the end of May.
Hansen said all members had the same level of risk under the current average rate product, resulting in that level being too low for younger members and too high for older people.
“The new product applies market-rate principles, with all members achieving a more appropriate investment profile,” she said, adding that the product AP planned to use also offered the option of individually adjusting the investment profile.
In recent years, many Danish pension providers have moved away from traditional average-rate or with-profit pension products – with or without yield guarantees – in favour of market-rate or unit-link products which are less onerous in terms of solvency requirements.