Average interest rate savings
Average interest rate savings
Your deposit and your payments will continue as an average interest rate plan with guaranteed benefits in PFA. This means that you are ensured a minimum payout on retirement. The return is evened out, which ensures a steady rate of interest in good as well as bad years. The risk is limited and so is the potential for a high return. The majority of your savings are invested in bonds, and only a small part is invested in shares.
With an average interest rate plan, you will receive an interest rate (deposit interest rate) which is fixed by PFA on an ongoing basis. The deposit interest rate reflects the average historical and expected return seen over a number of years. This way, the annual fluctuations in the actual return is reduced. Therefore, PFA’s return on investment in a given year will not directly influence the return that you receive on your pension plan the year in question. The deposit interest rate is reported to the Danish Financial Supervisory Authority.
Minimum payout
With an average interest rate plan, you are guaranteed a minimum payout when you retire. This is called guaranteed benefits. The calculation of the guaranteed benefits are is based on conservative assumptions about return, life expectancy, risk of reduced occupational capacity, expenses, etc. This also means that PFA bears the investment risk and the risk of any increase in average life expectancy.
Average interest rate and guaranteed benefits ensure a significant reduction in risk. PFA invests your pension conservatively to comply with the guaranteed benefits and ensure a steady return. This means that the return generated in the average interest rate environment often is lower than the return generated in the market rate environment, which allows greater fluctuations and does not have any guaranteed benefits.