The Danish Competition and Consumer Authority said in a new report that dormant pension plans – left behind when someone changes jobs, for example – should be automatically transferred to an individual’s active pension scheme, to avoid high fees eating into savings.
Publishing a new study entitled “Dormant Pension Schemes: Scope and Costs”, the watchdog said yesterday that Danish people had more than two million pension schemes they no longer paid into, but which were not yet yielding a pension, on which they paid over DKK1bn (€134m) in administration fees every year – most of which could be avoided.
The authority reiterated the recommendations that formed part of its larger 2019 report into competition on the Danish pensions market, including future pension contracts should state that dormant schemes be transferred by default.
Christian Schultz, chair of the competition council, said: “It is an advantage for savers if we get rid of small paid-up pensions.”
Around a third of dormant pension plans in Denmark are classed as small paid-up policies (klatpensioner) – those with less than DKK25,000, the authority noted.
It said that when savings are that small, the entire pot is at risk of being eaten up by administration fees.
“The Competition and Consumer Authority recommends it be investigated whether small paid-up pensions without associated rights can be automatically transferred to the company to which one actively pays, so savers don’t have to do anything themselves,” said Schultz.
He said fees from dormant plans formed a big part of some companies’ total income, with those fees fluctuating from under DKK20 to over DKK900 annually.
In some cases, dormant schemes cannot and should not be moved automatically, however, the agency said, adding that here the receiving pension company had a duty to ensure that the saver was informed of the advantages and disadvantages of a possible move.
The competition authority pointed to Norway in its report, saying the Nordic neighbour had introduced measures in 2021 to facilitate movement of pension savings from one provider to another including the automatic transfer of dormant schemes to a saver’s new provider.
Steps have been taken in the Danish pension sector to help people move dormant schemes, the authority said, including the decision by Insurance & Pension Denmark in 2017 that all pension schemes under DKK20,000 had to be transferable free of charge to an active scheme with another provider.
As part of that initiative, providers are obliged to send regular information to savers with small dormant plans about the advantages of gathering plans in one place.
“However, there is still a significant problem with dormant schemes,” the Competition Council said.
Read the digital edition of IPE’s latest magazine
No comments yet