Investing Danish pension savings in riskier asset classes “paid off” in 2020 amid market volatility, according to Forsikring & Pension.

The Danish pensions industry organisation’s investment statistics revealed that pensions invested in asset classes with more risk performed better than the ‘safer’ assets.

In 2020, return on pensions invested in global equities was 10.5 per cent, while return on emerging market equities totalled 9.1 per cent.

Forsikring & Pension noted that these returns were achieved despite returns on both asset classes being down by around 20 per cent at the height of market volatility in Q1 2020.

In comparison, return on the less risky government and mortgage bonds was 4.3 per cent, and return on investment grade bonds was 0.9 per cent.

“It is clear that pension customers are very different, and their preferences for taking risks in investments are correspondingly different,” said Forsikring & Pension head of analysis, Andreas Østergaard Nielsen.

“But when we make the year up, it is clear that more risk exposure in 2020 paid off - even in a very turbulent corona year, which started with big dives in the stock markets.”

Nielsen noted that the pension return on the various asset classes illustrated why it was necessary to take more risk if aiming for a return that can preserve the purchasing power of pension savings.

“In the past, you could achieve a nice return by investing in low-risk bonds,” he continued. ”But due to low interest rates in both Denmark and the rest of the world, you have to invest differently to get a nice return on investment. The completely safe investment ports no longer provide the great returns.”

According to Forsikring & Pension, Danish pension savings has been shifting away from pensions with a guarantee towards more unsecured pensions over the past 10-15 years.

It stated that pensions with a guarantee make up nearly half the total pension savings and approximately 30 per cent of the payments.

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