Pension funds in Denmark in 2013 suffered their poorest investment returns in the last five years, according to data from the financial regulator Finanstilsynet, with an overall loss on bonds dragging on performance.

The average investment return of lateral pension funds and life insurance companies was 1.9% or DKK75bn (€10bn) in 2013 – down 61.2% from DKK194bn the year before, the regulator said, based on an analysis of annual reports.

The institutions made a net profit of DKK4.3bn in 2013, compared with DKK12.6bn in 2012, with the decline attributable to the drop in investment returns, according to the data.

Finanstilsynet said: “Compared with the last five years, the return in 2013 was at its lowest.”

Bonds in particular were to blame for the low return, it said, with this asset class ending the year with an overall loss in 2013 of 0.17%, compared with a return of 7.7% achieved in 2012.

Contributions, on the other hand, rose in 2013 by 1.8% to DKK126bn, according to the data.

Total pensions assets climbed to DKK2.9trn by the end of December, meaning the lateral pension funds (industry-wide occupational schemes) and life insurance companies together managed 63% of all Danish pensions assets.

The remainder is divided between ATP, LD, banks and corporate pension funds.

The capital buffers of all pension providers included in the analysis have risen, the regulator said, with the excess coverage percentage rising to 12.1% at the end of last year from 10.9% the year before.

Customers’ capital buffers, in the form of the bonus rate, rose to 6.6% in 2013 from 5.5%, according to the analysis.

Average investment returns were higher for non-commercial pension providers last year than they were for the commercial firms, the data showed. 

While non-commercial providers ended 2013 with an average return of 4.5%, compared with 11.6% the previous year, commercial providers reported an average return of 0.4%, down from 8%.

These return figures excluded unit-link results, it said.

Data in the report also revealed the extent to which Danish pension providers have managed in the last few years to shift their assets under management away from pensions with a high level of guaranteed yield to with-profits pensions with no guarantee, or pure unit-link products.

The high reserve requirements carried by the guaranteed products have become increasingly burdensome for the pension providers.

Last year, provisions for contracts with high guarantees – of more than 4% – fell to 17% of total provisions, down from around 22% in 2012 and about 37% in 2009.

On the other hand, provisions for contracts with a zero-yield guarantee continued to rise to 38% in 2013 from 11% at the end of 2009.

There was a notable difference between non-commercial and commercial providers in this, however, with non-commercial pension funds having increased provisions for zero-guarantee products to 46% from 15%, and commercial firms lifting them to 30% from 8%.

Market concentration figures showed PFA Pension had increased its lead over other pension providers in Denmark over the course of last year.

It saw pension contributions rise to DKK24.8bn in 2013 from DKK21.5bn, while Danica Pension – second in the ranking – saw contributions only slightly higher at DKK16.8bn from DKK16.6bn.

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