In a report out today, Denmark’s financial watchdog expresses concern about the way pension funds calculate pension payments – saying only a few of the products aim to maintain the purchasing power of pensions in retirement.
Publishing its report on market development in 2022 for life insurers and lateral, or industry-wide pension funds, the Danish Financial Supervisory Authority (Finanstilsynet, FSA) said: “Reports to the FSA show that the negative investment returns in 2022 for some pensioners led to a reduction in their pension payment in 2023, while other pensioners, despite the negative investment returns, experienced a higher pension payment in 2023 than in 2022.”
Last year, assets backing market-rate products made up more than half of the total provisions for the first time, it said.
“According to the information, only a few companies have decided to use an expected increasing payout profile. This means that only a few of the products are managed based on a desire to continually increase pension payments, e.g. with the aim of securing the purchasing power of the pension payments,” the FSA said.
The watchdog said it would use the data in its ongoing supervisory activities and continued work with market-rate products.
“The Danish FSA continues to focus on pension customers being offered products that are appropriate, which create good results for customers throughout the products’ lifetime, and which reflects the needs of the individual target groups,” it said.
The FSA also took aim in the report at pension providers’ attitude towards potential conflicts of interest.
“It is worrying that several companies have replied that mixing responsibilities does not lead to conflicts of interest,” it said.
“A conflict of interest generally arises when a key person has other responsibilities than his given function,” the agency said, adding that it therefore expected that, if a person was given several areas of responsibility, a company could show it had taken a decision on which conflicts of interest that entailed.
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