Danish industry association IPD said average market-rate pension savings in the Nordic country have fallen 14% so far this year, and such poor performance showed why people need more pensions knowledge.
Kent Damsgaard, chief executive officer of Insurance & Pension Denmark (IPD), said: “The crisis and the poor returns in 2022 emphasise why it is so important that Danes know more about their pension schemes.”
After many years of good returns, he said, people’s savings as well as their pension payouts could now be affected by the financial turmoil.
“However, it depends on which pension product and risk you have,” he said.
IPD said pension savings had been hit hard by large losses on almost all assets this year, with those losses affecting pension savers differently, depending on their specific pension product.
“Pension savers who have a market interest rate with medium risk and 15 years to retirement have lost an average of 14% in the first three quarters of the year,” the lobby group said, but added that over the past seven years, this same group had experienced a positive average annual return of more than 5%, including the losses in 2022.
According to a survey, IPD said, half of the approximately 180,000 pensioners in Denmark with market-rate pensions would see a decrease in payments received in 2023.
“However, for many, the decrease in 2023 will be mitigated by the fact that the pension scheme does not make up their entire income, and that public pension supplements increase for many if the private payment decreases,” the association said.
Damsgaard said it was important that pension customers knew their pension scheme, and how payments could fluctuate in line with the returns on the financial markets.
“Many Danes find pensions a tough subject,” he said, adding that it was not enough for the them to be given information and tools – the industry had to capture consumers’ attention too, and stimulate their financial curiosity, he said.
The CEO said IPD was working with the Danish FSA on a campaign with the message that market-rate pensions could both go up and down, and in the last quarter of this year, his organisation would run a joint campaign targeting the 50-plus age group.
The comments came on the same day that Denmark’s Council for Return Expectations published its latest set of forecasts, which are established every six months as a basis for pension companies and financial institutions to calculate projections for their customers.
Although the council’s return expectations are unchanged in the long term – 11 years ahead and onwards – on a one to five-year horizon, the expected return for global shares has been ramped up to 6.1% from 5.0%, and to 10.2% from 8.4% for private equity, according to the expert panel.
Jesper Rangvid, the professor of finance who chairs the Council for Return Expectations, said that in its calculations this time, the panel had focused more keenly than before on assessing the inflation outlook, because there was now so much more uncertainty about consumer price developments.
The council also announced it was adding a third asset class – illiquid assets – for long-term forecasts alongside listed equities and bonds, with the new category including property, infrastructure investments and private equity, because pension funds and other institutional investors were increasingly allocating funds to alternative investments and real estate.
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