Pension savings in Denmark declined by 5% in the first three months of this year due to the price slump on equity markets, however market developments also had the effect of reducing household debt in the period, new statistics show.
Danmarks Nationalbank, the Danish central bank, has reported that the overall financial wealth of people in the country – financial assets minus debt – diminished by DKK183bn (€24.6bn) between January and March, corresponding to a reduction of DKK66,000 per person.
The central bank said in a statistical commentary: “Large share price declines have been particularly significant for financial assets, which are largely invested via pension savings, investment funds and shares.”
At the same time, interest rates had risen, it said, causing the market value of bonds to fall, which had particularly affected Danes’ pension wealth.
“In the first quarter, pension assets were reduced by as much as DKK212bn, corresponding to a reduction of 5%,” the bank said.
At the same time, the value of the Danes’ non-pension securities holdings had fallen by another DKK116bn, it said.
The bank noted that this decline in savings values had come after two years of rising financial markets, and that since the first quarter of 2020, peoples’ financial wealth in Denmark had grown by DKK2.4trn.
But while price declines on financial markets had had a negative effect on wealth, the bank said rising interest rates in the period had contributed positively on the liabilities side by reducing the market the value of the Danish peoples’ debt.
“In the first quarter, the market value of the debt fell by DKK141bn,” it said.
The reduction in debt levels was partly due, the bank said, to the fact that rising interest rates caused the bonds behind household mortgages to fall.
Under the Danish mortage model – said to be unique – the interest rate of a mortgage loan and the prepayment price directly reflect the price of the mortgage bonds funding the loan.
“A lower price corresponds to the market value of the bonds becoming smaller and therefore it becomes cheaper to buy bonds back, meaning that the the debt is reduced,” the central bank said.
However, the reduction in the value of the debt would only be realised if the underlying bonds were bought back in the current market – something that happened, for example, when loans were restructured, according to the bank.