Saving up for pension in Denmark guarantees you lose money

New orders from Financial Supervisory Authority mean pension funds can’t promise any minimum return on investment

‘Save up for 30 years and you lose a maximum of 0.5 percent on your investments’ – that is the best pension companies can promise to their new customers.

Low interest rates have compelled Finanstilsynet (Danish Financial Supervisory Authority) to decrease the limits of how much pension companies can promise their clients in return for investing with them.

Ending up in minus
The new orders mean that pension companies will lower the minimum investment guarantees from 1 to 0 percent.

Since most companies charge their customers, the net result will, in fact, be minus 0.5 percent.

Choosing riskier options
Some pension funds fear the new rules will force cautious pension-savers into riskier pension investments.

“It will drive away the customers who favour securities over market rates,” Per Poulsen, the vice president at Topdanmark, told Jyllands-Posten.

Can’t promise the moon anymore
In Denmark, over 70 percent of the total savings in pension funds, or 1,900 billion kroner, comes with a guarantee for a minimum return.

“There is no doubt fewer people will choose a traditional pension product and some companies will probably stop offering them completely,” an independent pension specialist, Søren Andersen, noted.

Finanstilsynet was clear is was not trying to destroy the traditional pension product.

“We’re following the methodology we used in 2010. With a 10-year government rate below 1 percent, it is not wise to promise customers they can get more in the future,” Per Ploug Bærtelsen, the head of Finanstilsynet, explained.