Pension savings returns are off to a good start to 2023. In Velliv, we are optimistic about the customers' returns when we look at the next two-three years.
We are off to a good start to 2023. In general, the return for customers in Velliv with VækstPension and more than 15 years until retirement have been between 3 and 4.5 percent for the first four months of this year. In particular, VækstPension Aftryk and VækstPension Index have given good returns.
This development is primarily driven by shares which have had a nice start to the year. Our investments in European shares have done particularly well. Velliv's bond portfolios have also contributed with positive returns, as both short-term and long-term interest rates have gone down in the US and Europe, following that the market expects less increases in interest rates. This is a result of lower inflation rates and expectations of an economic recession in the US as well as Europe. Lower interest rates mean higher bond prices and thus short-term capital gain.
In Velliv, we have cautious expectations for the return for the rest of 2023, as a recession in the US and Europa has moved closer. In fact, we expect a general drop in share prices in the rest of 2023. This is also why we have a reduced share exposure in the customers' portfolios.
However, we are positive looking to the next two-three years. We expect share markets to do well as long-term global growth forecasts are reasonable, after all. The generally high interest rate level is also good for long-term returns.
Velliv is not the only one with a positive outlook on the future. The independent Council for Return Expectations also expects things to clear up after a difficult 2022. The council now expects pension savings to grow at a faster rate in the future than previously expected. According to the council, we can expect approx. 3/4 percent more in annual returns than what was expected just six months ago. For a pension saver that saves up DKK 50,000 a year and has a current savings pot of DKK 500,000, this additional return alone will give DKK 160,000 over 20 years. After taking the development in inflation into account, this will mean an increase of DKK 70,000.
Also long-term returns have been reasonable. Over the past ten years, the financial markets have gone through long prosperous periods on the share markets, although the opposite has also been the case in periods following financial crises, debt crises, a pandemic, and war in the Ukraine. As a result, many savings pots in VækstPension have increased by 85%, and DKK 100 saved up in VækstPension ten years ago have become DKK 186 today.
There will always be bumps in the road to a solid long-term return, and 2022 was one of the larger bumps. However, in Velliv we are doing everything we can to limit any losses in difficult years, e.g. by putting together portfolios that are both robust and have a broad risk diversification. Furthermore, vi also regularly adjust our positions according to financial market forecasts. This means that your pension savings have benefitted from the advantageous market conditions characterizing a lot of the years leading up to 2022, and even though 2022 was a setback, the return was higher than the return for mixed portfolios of shares and bonds.
In Velliv, we monitor markets closely and are ready to react quickly to any challenges and opportunities we see in the market. We recommend that you maintain your current savings profile. Experience shows that it is extremely difficult to hit the right days in the financial markets.
The difference between investments made in Aktiv, Index and Aftryk is their primary focus, varying from risk diversification in investment portfolios and day-to-day attention in Aktiv, to costs in Index, and focus on the environment and society in Aftryk.
VækstPension Aktiv covers managed investments, giving you the best risk diversification and ensuring that you have a good chance of high returns. Our investment experts monitor the market, select from the individual securities (e.g. shares in specific companies), and continuously assess the mix of investment assets (e.g. shares, bonds, property, alternatives etc.). You will also get access to advantageous investment types that you would not normally get to invest in as a private person.
VækstPension Index covers investments based on indices and automatically follows several of the most well-known indices in the world (five for shares and five for bonds). It therefore has a lower risk diversification. However, you will be cut off from the possible additional profit given by actively-managed pension savings. On the other hand, your investment costs will be lower.
VækstPension Aftryk is managed with a focus on leaving the best possible footprint on the environment and society, and no investments are made in companies from the following industries: coal, oil & gas, arms, tobacco, alcohol, gambling, and pornography. This means that you improve the footprint your investments leave on the world, including a lower carbon emission. The focus on leaving the best possible footprint on the environment and society puts some limitations on what can invest your savings in, and this also affects the expected return. We expect a long-term return on the same level as Velliv's other products, however with a different short-term risk and thus also different fluctuations.
