The Danish Consumer and Competition Authority has put forward a range of proposals to make it easier to move collective pension savings from one provider to another, after finding that there are real restrictions to competition in the DKK2.9trn (€388bn) non-statutory pensions market.
It its 342-page study of the sector, which the watchdog started working on in June 2017, the authority said there were big gains to be made from improving competition between pension companies, made 22 recommendations aimed at strengthening competiveness.
Christian Schultz, chair of the agency’s Competition Council, which has overall responsibility for the authority, said: “Denmark has one of the world’s best pension systems. However, our analysis shows that it can be even better.
“There is little competition for the management of non-statutory pension savings. In total, they amount to [DKK2.9trn], so even small efficiency improvements will bring big benefits to both savers and society,” he said.
The council saw several signs that competition for pensions in Denmark could be improved, he said, with commercial companies appearing to have relatively high earnings while also having expensive asset management in terms of overall costs.
At the same time, most Danish labour-market pension companies were not exposed to competition, Schultz said.
“The vast majority of Danes’ pension schemes follow the agreements entered into by their place of employment – that is, the companies, or the social partners. It is therefore primarily these players, rather than the individual saver, who can contribute to strengthening competition,” he said.
As things stood, Schultz said, it was hard for decision makers to make an informed choice of pension provider, in the case of both labour-market and company pensions.
“We propose independent ongoing evaluations of pension companies that manage compulsory, savings-based pension savings – also in view of the fact that the pension companies manage a substantial part of national wealth and around [DKK1.3trn] of the state’s money in the form of deferred tax,” Schultz said.
The council said it had identified several steps to strengthen competition for labour-market pensions for the benefit of the savers, including setting up a working group to develop a model that could make sure company pension schemes were priced more cost-effectively.
Currently these schemes were typically made up of cheap insurance products and expensive asset management, Schultz said.
“This makes comparison of pension provision more difficult and can be a barrier for new players in the pension market,” he added.
On the topic of intermediaries, he said that while brokers were very important for competition for company pensions, it was “a major challenge” that they did not always create competition for the significant task of advising savers afterwards, with the big brokers typically taking on that advisory role themselves.
“It hampers competition when savers find it difficult to change company,” Schultz went on.
For this reason, he said the council was proposing solutions be found to enable a larger share of the collective savings capital to be moved, and to make it easier to move retirement pensions and retirement savings to another company once the saver had retired.