Danish public sector pension fund AkademikerPension has created a new life cycle investment vehicle following what it has called "dismal" 2022 returns.

AkademikerPension’s says its overall return for members was –11.6 per cent, slightly above the Danish average of –12.2 per cent. Returns across Danish pension companies in 2022 ranged from –2.6 per cent to –24.9 per cent.

The scheme has now introduced its 'Alfa' life cycle product, which is expected to deliver higher returns for members.

Alfa will work as a typical target date retirement fund, and will continuously adjust and reduce investment risk profiles as members get older. As a starting point, AkademikerPension will place savings in investments that can ensure a high long-term return.

"Some members may have been disappointed with our return because they compared it with other products where there are, for example, more shares," AkademikerPension investment director, Anders Schelde, said.

"With the new Alfa life cycle product, AkademikerPension now has products on 'all shelves', and it will then be possible to make far more robust assessments of whether we are doing well or badly going forward — because of course we have to be on target for our returns".

The fund's previous default vehicle has now become "out of date" for many members, as it was designed to produce stable returns but was restricted in its scope and flexibility, said Schelde.

AkademikerPension has also said that while many members have enjoyed historically high returns on their pension savings, solid forward-looking analysis by independent experts shows that pension savers around the world should generally expect lower annual returns than they have been used to in recent decades.

"For our older members, this really doesn't matter much, since, as mentioned, they have experienced very high returns for many years. But for the younger members, it increases the importance of them taking risks," said Schelde.

"Our calculations show that Alfa will compensate to a good degree for the expected lower returns".

Commenting further on 2022's investment returns, Schelde, says it was important to remember that pension savings are built up over many years, and pointed to the fund's annual average return for the last 10 years being the best in Denmark.

"If we look back five years, AkademikerPension has delivered the 4th best annual average return of 3.6 per cent among all average interest rate savings products," he said.

"And if we look back 10 years, our members can be pleased to have received the industry's best annual average return of 5.8 per cent."

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