Danish Supreme Court finds for AP Pension in group action concerning change of pension schemes
On 7 December 2023, the Danish Supreme Court found for AP Pension in a landmark decision in a case where 176 pension insurance holders had claimed that their change of pension schemes in 2011 should be found invalid. In doing so, the Supreme Court reversed the appealed High Court judgment. Plesner represented AP Pension before the Supreme Court.
In 2011, FSP Pension, which subsequently merged with AP Pension, completed a change of pensions schemes. FSP Pension offered its members to change from an average interest rate product with a guarantee for future pension benefits (guaranteed benefits) to a market-rate product without a guaranteed amount of future pension benefits.
In connection with the change, FSP Pension prepared information material describing advantages and disadvantages related to the unguaranteed market-rate product.
The material included information that the change to the market-rate product would entail that a member of the scheme would bear the risk relating to the investment return, and that the guaranteed benefits relating to a member's existing pension scheme would cease to apply. This would mean that the amount of future pension benefits was no longer guaranteed.
The subject-matter of the 176 cases was whether the information material was inadequate because it did not include explicit information that a member would also assume the risk relating to increasing life expectancies (the "longevity risk") by changing to the market-rate product. When life expectancies increase, pension savings are to be spread over a larger number of years, which may lead to reduced pension benefits. That is what happened in the case of the 176 members, as life expectancies increased significantly more than expected following the change of schemes in 2011. The members brought an action against AP Pension and were successful in the Eastern High Court. The case was appealed to the Supreme Court, and Plesner represented AP Pension.
The Danish Supreme Court found that the information material prepared by FSP Pension did not provide any basis for disregarding the change in 2011 as completely or partly invalid. Nor was there any reason for disregarding the change or for finding that FSP Pension incurred professional liability for its provision of advice in connection with the change of pension scheme.
The Supreme Court emphasised that the Danish Financial Supervisory Authority (the "Danish FSA") had reviewed the information material both in 2011 and in 2014 without pointing out that the material did not include any information that the members assumed the longevity risk when changing pension scheme. Also, at the time of the change, the Danish FSA had not issued specific guidelines as to which information was to be given by a pension provider in connection with such a change.
In addition, the Supreme Court based its decision on the fact that FSP Pension did not find at the time of the change that it was important to mention the longevity risk in the information material. It was the company's assessment at the time that life expectancies would only increase incrementally, and that such increases would be offset by the expected improved investment returns. In that regard the Supreme Court also attached importance to the fact that the Danish FSA's own predictions on life expectancies initially issued in late 2010 underestimated the life expectancy improvements significantly. The increased life expectancies did not result in a reduction of the pension benefits to the members who had changed pension scheme until 2014.
The Supreme Court also took into account that the members who change to the market-rate product in 2011 had already been compensated for waiving the guaranteed benefits according to practice at the time.
Finally, the Supreme Court gave regard to the fact that during the same period several other pension providers implemented similar changes as that of FSP Pension, without informing their members explicitly of the longevity risk.
Accordingly, the Supreme Court found for AP Pension.
In doing so, the Supreme Court reversed the Eastern High Court's judgment. The Eastern High Court had found that the change in 2011 should be disregarded as partly invalid, stating, among other things, that the Danish FSA's assessments of FSP Pension's information material could not lead to any other result. The Supreme Court did not agree with that.
As mentioned, Plesner represented AP Pension before the Supreme Court.