Statistical news focuses on the latest figures and trends in Danmarks Nationalbank’s statistics. Statistical news is targeted at people who want quick insight into current financial data.
Gap between pension wealth in market rate and average rate is narrowing
The wealth in market rate amounted to 46 per cent of the Danes' total pension wealth of kr. 3,802 billion at the end of 3rd quarter. Positive returns on pension investments have increased wealth in market rate in the past year. On the hand, the pension wealth in average rate has decreased since 2021 because the provisions have decreased due to rising interest rates. Average rate pensions are, however, guaranteed a minimum benefit, and the fall in the wealth does not, in principle, affect the minimum benefit for the individual saver at retirement.
Pension wealth in market rate close to wealth in average rate
Note:
The pension wealth is provisions for future pension obligations for market and average intest rate products in Danish insurance and pension companies. Life insurance companies and pension funds as well as ATP are included in the statistics. Find chart data here. In addition to pension savings in insurance and pension companies, Danish households also have individual pensions in their own bank deposits and cash deposits.
Pension wealth of kr. 1,754 billion in market rate products
The pension companies are increasingly offering pension products with market rate to new customers and conversions from average rate to market rate continue to take place. This form of pension savings is therefore becoming more widespread compared to the more traditional pension products with an average rate, where the pension companies overall have larger payouts to pensioners than contributions from working people. Unlike average rate pensions, the pension benefit paid is not guaranteed in market rate pensions. The movement towards more pension schemes in market rate and fewer in average rate therefore means that the investment risk increasingly lies with the individual pension saver.
Guaranteed pensions in average rate products
The pension wealth in average rate products was kr. 2,048 billion in the 3rd quarter, which is kr. 544 billion lower than in the 4th quarter of 2021.
However, average rate pensions are guaranteed a minimum benefit. Securing the guaranteed minimum benefit is done in practice by the pension companies determining a so-called deposit interest rate each year, which is the return attributed to the pension savings. The deposit interest rate can be kept stable over the years because the pension companies set investment returns aside in periods of high returns to build buffers – so-called collective bonus potential – which can mitigate losses in periods of low or negative returns. In this way, the pension companies can maintain the guaranteed return, so that payouts from pension savings in average rate are secured.
A reduction in the collective bonus potential is part of the explanation for the fall in pension wealth in average rate since 2021. It also plays a role that interest rates have risen, and the value of investments in bonds and interest rate derivatives has thus fallen. For the companies, however, the increase in interest rates means that fewer funds must be set aside in order to secure the guaranteed pension benefits in the future.
Large fluctuations in the collective bonus potential
Note:
The pension wealth is provisions for future pension obligations for market and average intest rate products in Danish insurance and pension companies. Life insurance companies and pension funds as well as ATP are included in the statistics. Find chart data here. In addition to pension savings in insurance and pension companies, Danish households also have individual pensions in their own bank deposits and cash deposits.