Danish pension fund AP Pension lost an important legal case yesterday, when one of the country’s two high courts ruled that plaintiffs had had to bear unreasonable risks after their pension savings were switched to a market-rate product from a guaranteed one.
In response, the commercial pension provider said it would now discuss the judgement internally, which it described at complex and having “potentially significant financial consequences”.
The Eastern High Court (Østre Landsret) ruled yesterday on nine trial cases about pension product choices in 2011 at FSP Pension – the bank sector pension fund that merged with AP Pension a decade ago.
The court said it ruled in the first instance in the nine cases as to whether the plaintiffs’ decision in 2011 to switch from one FSP Pension product to another was invalid and could be overruled or changed.
The high court said these cases had been selected as trial cases out of a total of 176 cases.
In connection with FSP Pension’s implementation of a exercise in 2011 to facilitate scheme members switching to a market-rate product from an average-rate product with a yield guarantee, the court said the plaintiffs had opted to make the change to a product recommended by the pension fund’s board.
“It was agreed between the parties that the applicants were informed and aware that they were losing the guarantee by switching to the market-rate product and that they were taking over the investment risk,” the court said.
However, the plaintiffs argued, it went on to say, that they had not been told they were taking on the risk of life expectancy, that FSP Pension’s life expectancy was insufficient at the time of the pension choice – something they contended FSP Pension had known about – and that as a result of this their pension benefits were reduced several times from January 2014.
In the judgement announcement, the court said: “The High Court found that it had to be considered unreasonable […] that the plaintiffs should bear the risk of the life expectancy assumptions, but that there was no basis for completely overriding the agreements on the switch to the market-rate product as unreasonable or contrary to fair conduct.”
The court awarded compensation to six of the nine plaintiffs relating to the period up to 31 December 2020 in individual amounts of between DKK9,300 (€1,250) and DKK381,602. In total, the compensation awarded to the six plaintiffs amounts to DKK1,335,696.
AP Pension chief executive officer Bo Normann Rasmussen responded to the judgement, saying: “We take note of the court’s decision and will now discuss internally how we relate to it.
“This is a complex case with potentially significant financial consequences for AP Pension’s customer community, so we need time to think.”
He said he noted that the high court had not found it to be proven that the management of the former FSP Pension had deliberately kept something hidden from members in an attempt to influence their choice of pension product.
“On the contrary, the high court finds that the FSP was of the opinion that the pension switching was overall economically advantageous for the members, and that the market-rate return could offset changes in life expectancy,” the AP Pension CEO said.