DENMARK - The controversial move by labour market pension fund Sampension to cancel pension yield guarantees and replace them with a declaration of intent is logical and well founded, a board member and former central bank governor has said.
Bodil Nyboe Andersen said: "If you have to create an enormous amount of capital, there is not so much money for the customers. So the logical answer was to change the agreements with the labour organisations of members, so that there was no longer a guarantee on the size of pensions, but a declaration of intent."
Nyboe Andersen, who is a board member at Sampension and was a governor of the central bank, Danmarks Nationalbank, from 1991, made the remarks in an interview with the official magazine of the Danish trade union federation HK.
Getting rid of the guarantees made the likelihood "much greater" that Sampension would actually be able to give its pensioners the level of pension it had previously promised them, she said.
In May last year, Sampension announced that it would abolish the guarantees, blaming the upcoming Solvency II requirements, which it said would lead to far heavier demands on capital where pension products had a yield guarantee.
Removing the guarantees would, therefore, be in customers' interest, it said at the time.
The pension fund has since weathered public criticism over the move. However, the decision was made in agreement with the collective bargaining partners in the employment sector the scheme covers, and in November, the Danish Financial Services Authority (Finanstilsynet) approved the change.
Nyboe Andersen said she was appointed to the Sampension board after the decision on the yield guarantees had been made.
"I have followed the debate and what happened after that," she said. "First and foremost, I have read all of the legal material that lay behind the reason for the decision."
Explaining that Solvency II would translate into Danish law as stricter regulations on the level of reserve capital a financial business must have, she said: "The thing about the new rules is that you have an incredibly large capital requirement if you have given your customers guarantees.
"This expected requirement - which has still not been finally agreed - is so large that one could see that it would be simply impossible for Sampension to procure enough capital to be able to fulfil the requirements."
She added: "The board has arrived at its decision against the background of a well-argued review. What was the alternative? One cannot guarantee something if it is so expensive the guarantees themselves collapse.
"And where should the money come from? There just isn't a huge cash box to dip into. In reality, Sampension is established in such a way that it is the customers who have to pay one way or another."
Nyboe Andersen questioned why the EU regulations were such that they made the cancellation of guarantees necessary and suggested they were not necessarily created to fit the Danish system.
"One of the explanations is that the Danish guarantee system is not the general system in the EU and internationally," she said. "They have other pension systems there. So we are a small player."
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