Danish pension savings have been “hit hard” by large losses on equities and bonds in the first half of 2022, although long-term returns are still “good”, according to Forsikring & Pension (F&P).

F&P noted that falling stock market prices and bond losses were observed in the first two quarters of 2022.

In Q2, pension companies’ returns from global equities was around -13 per cent, while returns on government and mortgage bonds was approximately -8 per cent.

Rising inflation, the war in Ukraine and higher interest rates have been a “toxic cocktail” for pension savings throughout 2022 so far, which has been compounded by returns on equities and bonds falling simultaneously in both Q1 and Q2.

F&P deputy director, Andreas Østergaard Nielsen, noted that the negative returns on bonds in line with rising inflation and falling equity markets have meant that pension companies have had difficulty covering losses as there has been nowhere to turn.

However, he stated that there was “light in the darkness” when stepping back from the current market situation and looking at the longer-term returns of pension companies.

"Pension savings are a long-term investment, and if we go back to the beginning of 2020 before the corona pandemic, the annual return on shares in the pension companies' portfolios at the end of Q2 is approximately 5 per cent, which is slightly less than the historical return on shares over long periods of time," said Nielsen.

Until this year, interest rates had been negative or close to zero for a long period of time, and the tightening of monetary policy to curb inflation has led to large interest rate increases in a short period of time has resulted in price losses on bond holdings.

"The pension companies have collected large losses on the bond portfolio this year, but with the higher interest rates that we are seeing now, there is a reverse prospect that bonds can again give a positive return in the future and at the same time be a safe investment in a turbulent time," Nielsen added.

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