Denmark: Pensions finally free from cumbersome banking regulations

In January 2024 a new law came into force in Denmark that separates existing pensions and insurance law from banking law. 

The change is one that the pensions and insurance sector had long been calling for.

From this year, the new insurance business act (Lov om forsikringsvirksomhed) governs insurance business in multi-employer occupational pension funds, life assurance and non-life insurance companies, and similar businesses. 

Previously, these firms and organisations had been subject to Denmark’s financial business act (Lov om finansiel virksomhed).

Pension funds previously had to spend time and money to adhere to documentation requirements that were irrelevant to them and were legally bound to conform to the “fit and proper” rules regarding the professional suitability of members of management boards and boards of directors – rules which had largely been geared towards banks.

The Danish Financial Supervisory Authority says changing the provisions on the fitness and propriety of management was necessary to attract more people with relevant skills and experience to management roles at insurance companies, a category of incorporation which in Denmark includes most pension providers. 

The act also covers new European Union regulations, especially concerning ESG, governing insurance companies.

Non-guaranteed products

The Danish FSA is currently looking into amendments to the regulations on management and governance regarding life insurance companies’ non-guaranteed products. 

The changes are aimed at specifying the duties of boards to decide on product features, such as the strategy for the decumulation phase, and to ensure sufficient governance and risk management. 

The authority is also considering making changes to the rules on sensitivity analysis carried out by insurance companies. 

The FSA is currently also mulling a revision of its guidance on the prudent-person principle in relation to alternative investments, including private equity, infrastructure and illiquid credit investments.

According to the authority’s consultation document, it is looking to update the original guidance from 2018, based on experience of using the prudent-person principle to include the practice the watchdog uses when administering the rules. 

The new draft guidance involves changes relating to valuation, the role of the risk management function and monitoring fund investments, for example.

One of the main regulatory issues currently occupying Danish pension funds and providers is the implementation of the EU’s Corporate Sustainability Reporting Directive (CSRD), with which all companies above a certain size in the union must comply, either by 2025 for listed companies or 2026 for larger, non-listed firms.

Anti-bureaucracy drive

The industry association Insurance and Pension Denmark (IPD) says it is currently working on helping the Danish authorities and the European Commission deliver on the pledge for a 25% reduction in administrative burdens that was announced in March 2023.

One area of focus is the level of information that providers are required to give customers, with IPD arguing that excessive requirements make it unnecessarily burdensome for providers and also create information overload for customers.

“We need to make sure we can present layered information so that what customers need to know is presented to them, and what is nice to know is accessible to them,” an IPD spokesman says.

The European Commission says it adopted 15 proposals since March 2023 that simplify and rationalise reporting requirements and is putting forward 26 additional rationalisation proposals to reduce the administrative burden in its work programme for the current year.

Attracting more savers

The Danish parliament earlier this year adopted new rules around retirement savings schemes (aldersopsparing) – a type of pension saving that is typically paid out as a lump sum, but can also come in several smaller portions.

The rules are aimed at making it more attractive for people to save via the schemes, since future contributions into the schemes will no longer be offset against certain social benefits in a household.

However, according to pension provider Sampension most Danes are unaware of these tax-advantaged pension products, citing a poll carried out on its behalf, in which three out of four respondents said they knew little or nothing about them.

One obstacle in the way of Danes consolidating their smaller lump-sum pensions from different providers with one firm was removed at the beginning of 2024.

New rules also came into effect allowing pension savers to move up to DKK50,000 (€6,700) from one pension provider to another without losing favourable conditions attached to the products relating to the earliest possible retirement age.