Denmark Reveals Measures to Mitigate Impact of Low Interest Rates on Pension Savers
13 June 2012 (PLANSPONSOREurope.com) – Denmark’s pension industry body Forsikring & Pension (F&P) has reached an agreement with the government to change its discount yield-curve to tackle the impact of low interest rates on pension savers.
Yield curves plot interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates.
The agreement sees the long end of the discount yield curve raised to a level more in line with normal market conditions and anticipated long-term projections for growth and inflation in Denmark.
Forsikring & Pension (F&P) chairman, Peter Damgaard Jensen, said upon signing the agreement: “The agreement loosens us up the problems that historically low interest rates provide for pensions.
“The current yield curve would lead to customer future returns being locked into a rate at a very low level. We would be forced to react to this if the historically low interest rates persist for up to 60 years. We would be forced to invest carefully and customers would be the losers. In addition, our ability to help create growth for the benefit of society would be small.
“With the change of the yield curve, we get more freedom to invest for the benefit of customers.
“This solution will cost neither the State state nor any other money. It's not a bailout. It is a correction of some rules that seem wrong during the extreme market conditions we are experiencing at this time.
“The change of the yield curve frees up reserves. This is not money, to be committed here and now –- neither in the form of bonuses nor distributions to owners. The money can only be used to create greater freedom to invest.
“No- one will receive lower pensions of due to this. But there are many who can get a better pension.”
The change is in line with Solvency II proposals presented by the European Commission.