ATP’s guaranteed pensions are intact – rising equity prices generate billion kroner profits from the investment business
Guaranteed pensions are still guaranteed at ATP, which generated returns in its equity portfolio in the first half of 2023. Members will have DKK 2.8bn transferred to the bonus potential.
After a challenging 2022, ATP’s results improved significantly in the first six months of 2023. However, from a technical accounting perspective, the ATP Group will still have a result of zero for the period. This is because as of this year ATP has implemented, and is now following, the new international accounting standard IFRS 17.
“I am satisfied that we have put a difficult 2022 behind us. Our returns are now positive, and the investment strategy gives ATP’s members a guarantee that they will be paid what we have promised them when they retire. Our hedging of interest risks means members can rest assured that we have the money we need to meet our commitments,” says Martin Præstegaard, CEO, ATP.
Due to the new accounting rules, ATP’s financial statements will look different going forward. The rules have an impact on the way ATP calculates, measures and presents its pension liabilities. The purpose of the new international accounting standard is to create transparency regarding pension and insurance companies’ earnings. A basic premise of the new rules is that ATP’s assets and returns belong to its members, so ATP has no equity. Under the new accounting rules, ATP’s total result is, therefore, technically zero when calculating the Hedging, Investment and Insurance Service business areas. In total, ATP generated a result of DKK 2.8bn in Hedging and Investment during the period. This amount of DKK 2.8bn, along with a DKK 1.9bn change in the provisions due to a decrease in projected life expectancy, has been transferred to the bonus potential which thus amounted to DKK 105.2bn at the end of the first half of the year.
Positive investment returns
ATP must always be able to ensure its ability to pay the lifelong and guaranteed pensions to its 5.5 million members. This is done by hedging the interest risk on the pensions, which worked as intended in the first half of 2023. At the same time, the investment portfolios generated a positive return which, together with an update of our members’ life expectancy and a positive result in the hedging portfolio, contributed to a slight increase in bonus capacity on a par with the average of the past 10 years. It was primarily equities that generated positive investment returns, whereas alternative investments did not, overall, contribute significantly in the first half of 2023.
For the remainder of the year, it is expected that the financial markets will continue to be characterised by a great deal of uncertainty. ATP will maintain its disciplined approach to risk management in order to generate the best possible returns, while ensuring that ATP is always capable of meeting its guarantees to its members. In the past 10 years, ATP has generated returns of DKK 126bn in the investment portfolio.
Administration activity expenses have remained low
ATP is still focusing strongly on keeping expenses low, as expenses directly impact the size of the pensions. ATP’s administration activity expenses amounted to DKK 19 per member in the first half of 2023, or 0.02 per cent of the total assets. This is like last year and continues to be very low in both a Danish and an international context.
Updating of life expectancy
This year’s updating of life expectancy resulted in a transfer of DKK 1.9bn to the bonus potential, corresponding to 0.3 per cent of the value of the pension liabilities. This transfer is due to a minor adjustment of life expectancy forecasts, as a result of the development in actual life expectancy seen last year.
Developments in assets
ATP’s reserves – the bonus potential – amounted to DKK 105bn at the end of the first half of the year, while pension liabilities amounted to DKK 542bn. The bonus capacity, representing the relationship between the value of the bonus potential and ATP’s total liabilities towards its members, stood at 18.2 per cent at the end of the first half of the year, which is in line with the average for the past 10 years.