Top Pension Industry Promises Only That Savers Won’t Lose Money

Come next year, the best that Denmark’s top-ranked savings industry can pitch to prospective customers is only that they won’t lose money.

Denmark’s financial regulator is planning to lower to zero the maximum guaranteed return that pension and life insurance companies can promise to customers looking to place their savings. It’s been at 1% since 2010.

Danish legislation “says that you have to choose your guarantee level with caution, and to be cautious in the current market you have to go down to 0%,” said Per Baertelsen, assistant director general at the Financial Supervisory Authority. “The companies would expect this change, given that interest rate levels have been low for quite a prolonged period.”

The move, due in January, is largely symbolic, as companies can offer customers lower returns than the allowed cap. Faced with extraordinary low bond yields, some have already taken the step in order to better manage their risks. The pension fund for doctors, for instance, says it’ll drop its guaranteed rate, already at minus 0.5%, to minus 1.5% in January.

The cap, which has been as high as 5% in the past, is based on bond yields, which have plunged. Investors are currently paying to hold Danish government debt.

Still, there’s an upside to a lower guarantee, since it allows companies to invest in areas where the returns might be higher than those provided by bonds, Baertelsen said.

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