Danish Financial Supervisory Authority launches debate on risks in new pensions

Every time Danes save DKK 100 for their pension, DKK 60 goes into schemes with unclear payments for customers when they start drawing their pensions. This has prompted the Danish FSA to launch a debate on the risks of so-called market return pensions with a new discussion paper.


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Søren Møller Christensen
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“Over just a few years, the Danish pension system has undergone an enormous change with the transition from traditional, guaranteed products to market return products,” said Jesper Berg, Director General of the Danish FSA, about the new discussion paper.


“The development has been driven by a wish to give customers the prospect of higher pension benefits, but it also means that customers themselves bear the risk that their pensions will not be sufficient to pay for their old age. We need a broad and informed debate on this issue,” said Mr Berg.


Among other topics, the Danish FSA would like to debate whether there is adequate consumer protection in the area. Today, regulation and supervision of pension companies is more directed towards traditional, guaranteed products. Companies can therefore take higher risks when investing funds in market return products on behalf of customers. Ultimately, customers can risk lower pension payments, if these investments fail to reap the returns expected.


“We can see that there is a larger percentage of more risky investments in market return products than in traditional products. At the same time, there are major differences in how individual pension companies define low, medium and high risk,” said Mr Berg. 


The new discussion paper raises a number of questions. Among other things, the Danish FSA is seeking to identify the properties that define a good pension product and to determine whether consumer protection can be improved.


The discussion paper heralds the conference to be held by the Danish FSA on 9 March entitled ‘Pensions when the guarantees disappear’. A number of Danish and international experts, consumer representatives and delegates from the insurance sector will be attending the conference.


Of total pension savings amounting to more than DKK 3,000 bn., the Danish insurance companies and pension funds manage more than DKK 2,000 bn. on behalf of future pensioners.


The Danish FSA requests that any responses to these questions be submitted by no later than 19 April 2017 to pensionskonference@ftnet.dk or Finanstilsynet, Århusgade 110, 2100 København Ø.


Read the discussion paper here