DENMARK - Skandia has moved to curb transfers out of its with-profits pension product in Denmark by imposing a withdrawal penalty - a move that suggests market values of investments have fallen below customers’ stated level of savings.

Equity holdings at all Danish pension funds have been hit by the recent market collapse, but Skandia is the first one to respond by bringing in a withdrawal penalty.

The commercial provider said: “The big price falls on the financial markets around the world mean Skandia has opted to introduce a temporary withdrawal penalty of 5.6%.”

The penalty, starting from today, applies to the Skandia Bonuspension with-profits product, which includes an element of guaranteed return.

During times of market instability, some Danish pension funds choose to impose a withdrawal penalty or kursværn on their guaranteed pension products, which obliges customers to pay an extra charge for withdrawing or transferring their savings.

The penalty aims to protect the underlying fund when the market value of investments falls below the value of customers’ on-paper pension savings.

The Danish FSA confirmed that, so far, Skandia is the only pension provider to have notified it of a new withdrawal penalty measure.

Skandia stressed that the move did not mean it was bad company to invest in, but simply that it had a long-term investment strategy with a high proportion of equities.

In the latest monthly statement submitted to the regulator, Skandia was shown to be in the ‘green’ light in the traffic light solvency scenario, it said.

The company’s spokesman Nicolai Nielsen said Skandia’s focus was to lift the withdrawal penalty as soon as possible, but he warned that exactly how long the phase lasted would depend on the markets.

“Compared with most other pension companies, Skandia has quite a high equities proportion,” he said. “We have reduced this a bit in the last month, but it stands at around 40.”

Nielsen added, however, that this high equity allocation would give the fund the potential to recover quickly from its losses when markets rebounded. 

Asked whether other pension providers were likely to follow suit, he said this depended how markets developed in the next few days and weeks.

“If markets have hit bottom, maybe no one else will do it, but if the markets go down further, there will be others,” Nielsen said.