Danish FSA sets out new priorities for market-rate pensions scrutiny

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Denmark’s financial watchdog has published a new report on market-rate pensions, and revealed four areas it will focus on particularly in its future supervision of the products, in which individuals are directly exposed to market risk.

The Danish FSA (Finanstilsynet) said product characteristics, governance, risk management and communication to customers would be the new priorities, saying it had mapped a sector involving 14 providers and DKK1.1trn (€148bn) of savings.

Carsten Brogaard, the FSA’s deputy chief executive officer, said: “In market-rate products, there is in principle greater unpredictability about the payments, and therefore the companies must focus on the products being suitable for the given customer groups.”

In the new report entitled “Market-rate products – tendencies in the Danish pensions market”, the authority said that today around two-thirds of pension contributions in Denmark go to unguaranteed, market-rate products.

The shift towards these unguaranteed products would take pressure off pension companies, allowing for further “investment freedom” and, in turn, potentially generating stronger returns, it said.

But the FSA acknowledged that market-rate products carried more risk, which almost always fell to the customer, meaning that savers could see reductions in their pensions if investments produced weak or negative returns.

“The boards of the [pension] companies should also take a clear position on the size of fluctuations in the pension payments that they will tolerate on behalf of the customers, and ensure good governance and risk management that supports the choices they make,” said Brogaard.

The regulator said back in January that providers of market-rate pension products in Denmark had not been providing customers with enough information about the risks involved, in both the accumulation and payout phases of the products.

It was publishing a report containing three years of investigative work, revealing information from pension companies on the “privatisation” of risk in the unguaranteed market-rate products.