Last year’s losses suffered by Danish labour-market pension provider P+ were particularly steep because the firm had been increasing the level of risk in its investment portfolio, it revealed today.
P+, which calls itself the pension fund for academics, released its annual report today which showed a total return for 2022 of -12.9%, according to the standardised N1 key figure for Danish average-rate pension returns.
Søren Kolbye Sørensen, chief executive officer of P+, said: “2022 was a year characterised by sharply-rising inflation, repeated interest rate increases and Russia’s invasion of Ukraine, and in fact it was only our investments in infrastructure and foreign properties that contributed positive returns.”
Normal market dynamics had been thrown out of whack last year, he said, when unusually, both stock and bond markets were hit at the same time, and almost all other asset classes were affected too.
The Copenhagen-based pension fund said it had been gradually increasing its risk profile in recent years.
“Compared to other companies, our risk levels are on the high end,” the CEO said.
In 2022, when there was extraordinary turmoil and losses on the financial markets, he said, it had been quite expected that this would contribute to a larger negative return.
“Conversely,” he said, “It provides greater recovery when the markets turn, which has so far been evident in 2023, where P+ is right at the top when you compare the return for market-rate pensions across the industry.”
In the long term, the risk profile allowed the pension scheme’s members to achieve a higher return, the CEO said, adding: “That’s why we are sticking to the risk levels despite the development last year.”
Kolbye Sørensen said 2022’s negative return had to be seen in the light of a ”record-high return” in 2021 and generally positive returns over the past several years.
These past years’ returns had an impact on the account dividend payable to average-rate pension savers in 2022, the CEO said, with “the vast majority” having received an account dividend of 7%.
Among other Danish labour-market pension providers, PFA Pension recently reported its overall 2022 return for average-rate pensions had been -20.8%, according to the official N1 measure, while PenSam, which provides average-rate pensions, reported a -13.0% return for these products for 2022.
P+ said in October 2022 that most of its scheme members faced extra charges to withdraw or transfer savings – after plummeting asset values caused it to put an emergency withdrawal-penalty measure in place. Withdrawal penalties are still in effect for some scheme members, according to data from industry association Insurance & Pension Denmark.