With an average return of 15.7 percent for medium risk pension savers with a life-cycle product who are 15 years from retirement, 2021 goes down as a particularly good investment year for Danish pension funds.

Despite this, the average varies wildly between those who saw the most and the least from the year, according to an analysis conducted by independent investment advisor Nikolaj Holdt Mikkelsen.

Sampension has performed the best in the comparison, with its savers receiving a return of 21.1 percent, closely followed by Industriens Pension. At the bottom of the barrel is the pension fund for academics, AkademikerPension, delivering a return of 10.9 percent.

One size fits all

Chief Investment Officer at AkademikerPension Anders Schelde explains that the reason for the placement is that the pension firm currently only offers one product. Whether clients are 40, 20 or five years from retirement, they will have received the same return.

"There are thousands of returns figures, and the problem is where to place the ones like us who have set profiles," Schelde says, pointing out that AkademikerPension's product largely looks like a life-cycle product with ten years to retirement.

"We have around 40 percent of our portfolio in assets, whereas others with 15 years to retirement have around 60 percent. That's the explanation," Schelde says.

He also reports of an otherwise satisfying investment year, where particularly private equity has done well with a return of 57 percent.

"Compared to our own benchmark, we are 2 percent over. That's very good for a pension product like ours," Schelde says, nonetheless highlighting that AkademikerPension is working to bring more products to its members.

Fun to be number one

A clear sense of satisfaction is found in the comparison's overall winner, Sampension, and its CEO Hasse Jørgensen.

"I can't say I won't be mentioning this once or twice. It is of course always fun to be number one. No doubt about it. But that being said, the most important thing is to perform over several years. It doesn't help to generate 20 percent returns one year if it's minus 20 percent the next," Jørgensen says.

Sampension's result is explained by a return of around 20 percent in its real estate portfolio, which becomes 60 percent when looking at unlisted assets and a generally good stock market year.

"Not unlike many others, we have had a nice exposure to assets. If you are lucky enough to be in the right sectors, assets will have given nice returns," Jørgensen says.

Remember the compound interest

Holdt Mikkelsen points out that the comparison essentially shows how companies allocate funds. Though 2021 has been a great investment year, there is still a large difference between individual pension clients in the results of their efforts, be it returns of 11 percent or 21 percent.

"If pension funds invested DKK 1m (EUR 134.434), the difference becomes DKK 100,000 (EUR 13,446) in returns for this year alone. That is not insignificant. Not at all, when considering the effect that compound interest has on returns," Holdt Mikkelsen says.

He highlights that the small margins make the difference, and exposure has been significant.

"Overall, assets have gone up by 30 percent. So, a difference of 10 percentage points allocated to assets has naturally had an effect," Holdt Mikkelsen says.

He also mentions private equity and real estate as asset classes that have done very well. The CEO of pension advisory firm FPension, Søren Andersen, also describes 2021 has a good returns year.

"As a customer, you shouldn't expect another year like 2021. These are very good returns and we can all be pleased about that," Andersen says.

Lower returns predicted – again

A look into the future comes back with expectations of lower returns.

"There is a consensus that you have to prepare for lower returns. No doubt about it," Holdt Mikkelsen says, acknowledging that this story has been told several times before.

"Presumably few people expected 2021 to turn out a good investment year back when it began," he says, pointing out that F&P's expectations for returns on global assets in the coming weeks is under 6 percent.

Bond investments are also not predicted to impress.

Sampension's Jørgensen has previously forecasted lower returns in the future. The same is the case for 2022, where the pension firm has a middle-of-the-road expectation of a return of 4-6 percent.

"It is definitely true that we have predicted low returns before. But we are also in a long-lasting interest downswing, which means there is a greater chance of interest increases in the long run," Jørgensen says as part of the explanation.

(This article was provided by our Danish sister media, FinansWatch.dk)

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