It’s the latest sign that long-term subzero rates are forcing Denmark to reshape its finance industry. The country’s banks have already taken a world lead in imposing negative retail deposit rates, while Danish homeowners have access to mortgages at negative interest rates.
Denmark’s pension industry, twice the size of its economy and ranked the best in the world alongside that of the Netherlands, is now taking another step into uncharted territory.
The Danish regulator has decided it’s no longer feasible for funds to promise savers in guaranteed-return products that they’ll get at least 1%. So from July 1, funds will only be allowed to guarantee savers minus 0.5%.
(Savers opting for riskier pension plans that track market rates aren’t affected by the change.)
A negative return guarantee “is a weird concept,” said Per Ploughmand Baertelsen, assistant director general at the FSA in Copenhagen. But that’s what savers need to accept, if they want to place their money into products “with zero risk, or low risk.”
The decision may well accelerate a shift away from such guaranteed-return pensions in Denmark, which currently account for two-thirds of obligations to customers. The majority of premiums are now paid into products that are at the mercy of the market. Many funds are also actively advising customers to switch to market-based products.
Denmark boasts the world’s longest stretch of negative rates, after first imposing them in 2012 to maintain the krone’s peg to the euro. On Thursday, the central bank took further steps to manage the exchange rate by stabilizing money market rates.
What's wrong with this picture?
I assume this is on par with the return on US social security administration investments.
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