The majority of Danish pension funds were present on Thursday at the Danish FSA's conference "Pensions when the warranties disappear" in order to discuss the fact that with the entry of market rate pensions, the risk of whether Danes' pensions will be sufficient in the future is all on the individual.
"I'm very satisfied with today and all the discussion, enthusiasm, and interest in the field. One of the issues is that we need to spread the interest and understanding. That's the entire purpose of the drill," says the Director General of the Danish FSA, Jesper Berg, to FWAM after the conference in Copenhagen, not far from the Danish FSA's own headquarters.
Ahead of the conference on Thursday, the Danish FSA sent out a discussion paper in which the issues were outlined. Contrary to traditional average interest rate products, pension funds and companies no longer shoulder the risk of whether the pensions are sufficient. That lies with the individual client.
"There is a mismatch"
In the first presentation at the conference, chairman at the Danish FSA Henrik Ramlau-Hansen described the problem that pension funds don't risk their own capital when moving from pensions with payout warranties to a market return based approach.
"It's an ascertainable fact that pension funds invest with more risks, but clients are not aware of the risk. There's a mismatch," said Morten Bruun Pedersen, senior economist at the Consumers' Advisory Council Tænk, who participated in one of the two panel debates at the conference.
In the wake of the discussion paper, the Danish FSA has urged the businesses to send in response papers regarding possible solutions.
"Regarding the next step, we have a discussion paper sent out, and we're getting discussion papers in. The minister is waiting for us to gather the information, then we will send it in to the minister and the political system, and then they will decide how we will go about further debate," Berg says, and adds:
"To me, the most important thing is that there is understanding from the government, and that there's satisfaction acceptance of the balancing between risk and returns, and the information needs and governance structure present."
A political choice
When you have processed the incoming responses, will you then make recommendations to the political system, or will you present it as is?
"We don't know yet. But I can imagine that we will summarize the points so as to make the different options and methods visible," says Berg.
He refers to the fact that chairman at the Danish FSA, Henrik Ramlau-Hansen, outlined three possible ways to secure Danish pension savers' savings better than today:
- Should it be required for the company to make more concrete decisions on product features regarding unwarranted products?
- Should there be requirements for information for clients about annual pension services and the inherent risk?
- Should there legally be restrictions on the risk that a client is allowed to take on in regard to annual pension services?
"But it also depends on what the minister asks us to do. In Denmark, this usually happens by finding a common position and then talking things through with each party. That's probably the process that we're seeing right now. But it's a political choice of how this is to be done," says Berg.
What did you find particularly noteworthy about today's event?
"Firstly the big interest in this, and everybody agreed that we need to find a common position in this matter. Secondlythe questions about governance and information, and those two things are closely connected," says Berg.
English Edit: Marie Honoré