Analyses focus on current issues of particular relevance to Danmarks Nationalbank’s objectives. The analyses may also contain Danmarks Nationalbank’s recommendations. They include our projections for the Danish economy and our assessment of financial stability. Analyses are targeted at people with a broad interest in economic and financial matters.
The road to more risky assets in the Danish pension sector
The European Commission has focused on how pension systems can supply long-term capital for European companies and pointed to the Danish pension system as a good example. Over the past four decades, Denmark has developed a pension system that is largely savings-based. A substantial proportion of investments have been allocated to Danish, European, and American companies, as well as bonds. Risks have also shifted from pension companies to pension savers as unguaranteed pension schemes have become more prevalent. This has supported the solvency of the pension companies and increased the expected returns on investments.
Key messages
Why is this important?
The Danish pension system is important for ensuring that Denmark has a robust economy, and in an international context, it stands out positively. The structure of the pension system is the result of many years of development and reforms that may serve as inspiration for other countries. There is currently a debate within the EU about competitiveness and the need to channel savings into the economy. The Danish pension system is an example of a savings-based pension system in which investment risk and higher expected returns have gradually replaced pension schemes with guarantees over the years. This transition away from guarantees has led to higher risk tolerance on the capital being channelled into the economy through more investments in listed equities, infrastructure and private equity.
Main chart
Pension funds in occupational pension schemes hold larger amounts of risky assets if benefits are not guaranteed
Note:
Collective schemes without guarantees refers to collective pension schemes with conditional guarantees or with no guarantees at all. Collective schemes may also be referred to as average rate products. Pension schemes with guarantees may also be referred to as protected pension schemes. Similarly, pension schemes without guarantees may also be referred to as unprotected pension schemes. Derivatives are not included. Listed equities and bonds do not add up to 100 per cent of the total investments from Danish pension investments. Parts of Danish pension funds are also invested as alternative investments and as other investments. Data is end 2024.
Source:
Own calculations based on Solvency II Quarterly Reporting Template and Danmarks Nationalbank.