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Denmark extends pension fund rescue package indefinitely

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  • Denmark extends pension fund rescue package indefinitely

DENMARK - The Danish government is now extending indefinitely the rescue package for the country's pensions sector put in place two years ago in the wake of the international financial crisis.

The ministry said: "The Economics and Business Affairs Ministry has, in conjunction with Forsikring og Pension (the Danish Insurance Association) extended the agreement on financial stability in the pensions sector.

"The extension has no time limit, since it has been agreed the arrangement ensures an appropriate transition to the new Solvency II rules in the pensions sector."

The package was initially agreed for a period of one year - in October 2009, it was extended until the end of 2010.

When the deal was first renewed, the ministry stressed that the main aim of the package was to head off wide-scale selling in the domestic mortgage bond market.

Market conditions had led to a situation where insurance and pensions companies could have been forced to sell Danish mortgage bonds unnecessarily, it said.

This would have had serious consequences, not only for pension savers but also for property owners, with property prices falling and interest rates rising, it said.

The key measure in the rescue package was the temporary adjustment of the "maturity-dependent interest rate term structure", or yield curve.

Under this adjustment, Danish companies are allowed to use a yield curve based on Danish interest rates, rather than having to use one expressed in euro swap interest rates.

Basing the curve on euro rates had caused problems when the Danish currency came under pressure in the financial markets.

Other measures in the package include stronger consolidation by putting an upper limit on bonuses, adjustments for mortgage bond portfolios when working out individual solvency requirements and more weight being put on solvency requirements rather than traffic-light scenarios.

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