PFA: Solid returns for the customers despite a challenging 2016

Low or negative interest rates, a declining Danish equity market and political surprises by way of Brexit and the election of Donald Trump were all contributing factors to a challenging year for investments in 2016. However, PFA Pension was well prepared to handle the fluctuations, and therefore, the year resulted in positive returns for the customers. For market rate customers, the return was between 6.5 and 8.2 per cent, including Customer Capital, depending on the selected investment profile.

“In PFA, we exist to create more for the customers to live on. We do so through our advisory services, insurance cover and especially through our ability to create a positive, long-term return on their savings. Therefore, we are proud that we this year have been able to deliver a 6.5 - 8.2 per cent return to our market rate customers in a challenging market – in particular given the Danish inflation, which is at 0.1 per cent,” says Anders Damgaard, CFO in PFA Pension and responsible for the investments of the customers’ money.

The return on the average interest rate environment amounted to 6.7 per cent, where, in particular, interest rate hedging and the bond portfolio were large contributors. This return is a result of a drop in the interest rates throughout the year and should be seen in this light. Corporate bonds, alternative investments and properties furthermore contributed positively to the return. A significant part of the return in the average interest rate environment goes to the underlying customer reserves to protect PFA’s future obligations towards the customers. Therefore, PFA’s return on investments in a given year will not directly influence the deposit interest rate which is added to the customers’ market rate plans. The deposit interest rate is regularly fixed by PFA.

PFA's total return in 2016 amounted to DKK 26.1 billion.

Long-term focus

The CFO of PFA furthermore underlines that even though PFA's investment experts spend each day creating positive returns for the customers, success must be measured over a longer period of time.

“To create a positive return for the customers is not solely a question of a few days or months. It is first and foremost about delivering reliable results over a number of years, so that our customers will have financial freedom later in life. For this reason, it is our goal that we in a five-year perspective will rank at the top of the list of market rate returns among our competitors. And, we do live up to this ambition,” says Anders Damgaard.

In the light of an investment environment with low or negative interest rates and insecurity in the equity market, a key element in PFA’s investment strategy is to find alternatives to shares and bonds. Therefore, PFA has consolidated its competences within alternative investments and, in the coming years, expects to expand investments within, for instance, properties, infrastructure (such as through public-private partnerships) and sustainable energy.

“These are areas that require due diligence and competences. Therefore, we are pleased to inform that PFA has welcomed a number of highly professional and competent colleagues within these areas,” Anders Damgaard explains.

The customers will benefit from the profit

At the same time, he emphasises the strength of PFA’s business model, where the majority of the profit is distributed to the customers, whereas the owners only receive a limited part.

“Both in favourable and more challenging investment years, it is the strength of our business model that the owners only are to receive a limited part of the profit. We have thus chosen that as much as possible of the profit of the year is to benefit our customers when we distribute it through CustomerCapital. This way, we offer our customers the best possibilities of achieving financial freedom throughout life,” says Anders Damgaard.

For a PFA customer with 5 per cent CustomerCapital on his or her savings in 2016, the distribution of profit resulted in an extra return of 0.6 - 0.7 percentage points on the total savings.

PFA's customers and the markets in 2016

  • Total return to the customers: DKK 26.1 billion
  • Return on market rate products: 6.5-8.2 %, depending on the selected investment profile and years to retirement
  • Return on average interest rate products: 6.7 %
  • Return on the recommended investment profile: 7.8 %
  • Expected return on individual CustomerCapital: 20 %
  • Development in the Danish share market: -5.7 %
  • Development in the global share market: 9 %
  • The Danish 10-year government bond interest rate dropped from 0.9 % to 0.3 %
  • The Danish inflation rate: 0.1 %

 

Summary of the 2016 return on PFA's market rate investment profiles

  • PFA Plus Profile A: 6.8 %
  • PFA Plus Profile B: 7.3 %
  • PFA Plus Profile C: 7.8 %
  • PFA Plus Profile D: 8.2 %

 

The figures apply to customers with 30 years to retirement

Disclaimer

Market rate, PFA Plus. Not everyone is free to select one’s own investment profile or have CustomerCapital linked to their plan. The possibilities depend on the agreement that the individual employer has with PFA.
Historical returns are no guarantee for any future return.

PFA CustomerCapital. This is capital base in PFA Pension, which will receive a part of any profit, but will also take part in covering any losses. A possibility of a high return on CustomerCapital exists, however, there is also a risk that CustomerCapital decreases and lapses completely in the last resort.