Proposal to amend the ATP Act sent for a hearing
The Danish Ministry of Employment has sent a proposal to amend the ATP Act for a hearing. This has been done due to the low interest rate environment and the need for ATP to continue to be able to provide lifelong and guaranteed pensions that keep up with inflation and the longer life expectancy of Danes.
Falling and low interest rates have been a fact of life in the past few years, and everything indicates that these low interest rates will persist for several years into the future. This challenges ATP’s opportunities to continue to provide relevant, lifelong and guaranteed pensions.
After a recommendation from ATP’s Supervisory Board and in order to adapt ATP’s business model to a longer period with expected low interest rates and returns, on 22 January 2021 the Danish Minister for Employment sent a draft proposal to amend The Danish Labour Market Supplementary Pension Fund (ATP) Act titled, in Danish, ”Lov om ændring af lov om Arbejdsmarkedets Tillægspension (Udvidelse af bestyrelsens indstillingsret vedrørende tarifgrundlaget, m.v.)” for a hearing.
The ATP pension must remain relevant
The proposed amendment will allow ATP as a responsible investor with a strong focus on responsibility to invest more freely and thus have the opportunity to create higher pensions by taking more long-term investment risks. This will be done via a balanced approach and with a continuing focus on providing a relevant, lifelong and guaranteed pension to our 5.3 million members.
The low interest rates are a challenge for the pension industry, especially when combined with the fact that the residents of Denmark, and thus also ATP’s members, live longer. ATP wants to address this challenge via an optimisation of its business model: how ATP manages the contributions paid by its members. This is for the purposes of being able to continue to ensure a relevant ATP pension, what we call the ATP Livslang Pension (Lifelong Pension).
Members must be able to count on their pension
The ATP contribution is fixed in terms of Danish kroner and ører, and the current business model that involves placing a high proportion of contributions in very secure assets means that ATP has a high degree of certainty in its ability to honour the guarantees. On the other hand, it is difficult to meet the objectives of ATP Livslang Pension (Lifelong Pension) being increased and thereby maintaining its value in real terms. Therefore, it is ATP’s assessment that ATP’s framework for risk taking needs to be adjusted - without significantly increasing the risks. ATP Livslang Pension (Lifelong Pension) is an important part of the members’ basic financial security together with the state pension. Therefore, ATP must also in the future be able to honour its guarantees so that its members can count on the pensions they receive from us.
Over the past few years, there has been made thorough analyses in order to investigate whether ATP’s pension product and ATP’s hedging and investment strategy should be adjusted in the light of the projected continuing low interest rate environment. ATP’s Supervisory Board has had a clear task: How do we create a better basis for continuing to generate attractive returns while also maintaining guaranteed pensions?
It is possible to find a balance
On this basis, ATP’s Supervisory Board has decided that the time has come to adjust ATP’s business model and in so doing strengthen its opportunities for continuing to provide ATP’s members with relevant, lifelong and guaranteed pensions. With these adaptations, the aim is not to fundamentally change the ATP Livslang Pension (Lifelong Pension) product itself. Part of the changes will therefore mainly take place on the “inside” of ATP’s ongoing administration and management of the total funds.
The Supervisory Board assesses that ATP’s business model will, with the proposed changes to the ATP Act, be designed in such a way that ATP will also in the future ensure a balance between the considerations on one hand of achieving high returns that benefit ATP’s members and on the other hand the considerations of ATP always being able to honour its obligations. This will all take place within the framework ATP continuing to live up to its responsibility.
The Danish Parliament will decide
It is the Danish Parliament that will decide whether to amend the ATP Act. The proposed amendment has now been sent for a public hearing. The specific changes will be implemented after a potential amendment has been adopted later in 2021.