Providers of market-rate pensions in Denmark have not been giving customers adequate information about the risks they are exposed to, both in the accumulation and payout phases of the products, according to a new report by the financial regulator.

The Danish FSA’s (Finansitilysnet) said its report covers information from pension companies on the “privatisation” of risk in unguaranteed market-rate products, and follows fact-finding work begun by the authority three years ago.

The FSA said: “Based on the study, the Danish Financial Supervisory Authority finds that it is generally challenging for companies to adequately inform pensioners about the risks associated with pension products.

“The FSA considers that it is hard for pension holders to gain insight into the risks they carry with market-rate products, and what consequences they may have for them,” it said.

More than two-thirds of pension contributions in Denmark are now directed into unguaranteed market-rate products, the authority said, noting that the shift away from guaranteed pension products had political support.

The FSA said the information pension holders were given in their pension forecast threw up many issues.

“The only thing a pensioner can be almost sure of is that the number can and will change – both before and after retirement. However, this is often not communicated clearly to the pensioner,” the watchdog said.

It stressed, however, that several things had happened in the field of market-rate pensions since the report was compiled, but that it was still relevant to publishing the study’s overall result, since it contained a description of how the industry communicated before focusing on the area.

“In this way, it is easier to chart the development and industry improvements by a subsequent follow-up study,” the FSA said.

“it is hard for pension holders to gain insight into the risks they carry with market-rate products”

Finansitilysne, the Danish FSA

In the consultation following the FSA’s conference entitled “Pensions when guarantees disappear” in early 2017, industry association Insurance & Pension Denmark (IPD) announced four sector initiatives to increase consumer information.

The FSA said providers implemented some of these solutions on 1 January 2019 and, according to its information, all the measures were to be completed by the beginning of 2020.

These initiatives had not been reviewed in the report, it said, nor whether they had solved consumer issues or would do so.

Among conclusions, the FSA said in its report that with some providers, disability pensions were connected to the same risks as old-age benefits, and were affected by the same changes in the assumptions, but that pension savers were not told this explicitly.

It also said that while five commercial life insurance companies out of the 11 providers in the report did provide some form of security through hedging for their market-rate products, what these schemes actually covered and how they were described to pensioners varied widely.

Information given to pension customers about risks was very sparse, it said, and where companies did mention this, most emphasis was on the investment risk.

“None of the material of the companies in question contains clear information on the risks associated with a possible change in life expectancy,” the FSA said, adding that  several companies omitted this information completely.

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