Prediction of return on shares

In the private sector, the technical provisions of pension providers include an item of its own: an equity-linked buffer (OLV), which enables pension providers jointly to bear part of the risk arising from fluctuations in returns on equities. On the basis of the realised returns on equities, this component of the technical provisions is either increased or decreased by the so-called equity coefficient, which is determined by the Finnish Centre for Pensions. The equity coefficient takes into account the weighting coefficients and point figures, which we update on this page once every quarter.

Weighting coefficients and the values of sub-indicies

Weighting coefficients of the OLV index and the point figures of sub-indices at the end of each quarter of this year have been compiled in the appended table. The next update, for 31 March 2023, will be published during week 21 in 2023.

Date	31.3.2022		30.6.2022		30.9.2022		31.12.2022
Updated	25.5.2022		26.8.2022		25.11.2022		23.2.2023
	weight	index value	weight	index value	weight	index value	weight	index value
Finland	34.02	26558.35	34.63	24423.52	35.26	23436.08	36.82	25904.74
Europe *	29.92	11127.06	29.67	10207.15	27.64	9777.10	29.06	10670.69
USA *	31.06	8582.52	29.19	7695.61	31.47	7799.69	28.98	7667.37
Japan *	5.00	23.25	6.51	21.39	5.63	21.30	5.14	22.05
Total	100.0		100.0		100.0		100.0

* All three index values have been obtained by dividing them with the currency exchange rates calculated by the ECB. Currency exchange rate values

Source of the index values: Bloomberg, MSCI, Nasdaq OMX Nordic

The average allocation of equity investments to different areas is a weighted average of all private-sector pension institutions. As from 30 June 2019, the maximum weight of individual pension funds is restricted to 15 per cent. Starting in 2015, the maximum weight was 20 per cent. Before 2015, the maximum weight had been 15 per cent.

Principles of prediction

Changes in the equity-linked buffer (OLV) are calculated retrospectively for each quarter. The calculation is made for the whole pension liability in the same quarter, on the basis of the actual average rate of return on quoted shares included in investments made by private-sector pension providers for the same quarter (known as the average return). The shares included in the calculation are limited to shares listed on OECD and EEA stock exchanges.

When the average return is calculated, the weight given to an individual pension provider’s share investments is at most 15 per cent.

After each quarter, the Finnish Centre for Pensions collects data from authorized pension providers to calculate the final liability. In addition to the rate of return, the data collected include information on tied up capital.

Real-time determination of liability requires prediction

For the real-time determination of pension providers’ liability, the above rate of return on shares must be estimated for the current quarter and the quarter just ended, on which the collection and processing of the final data have not yet been completed.

According to the position taken by TELA’s Advisory Committee for Calculation Criteria Affairs, estimation is made using a weighted share index whose relative change (as a percentage) is determined with sufficient accuracy to predict the rate of return used in the final calculation of the equity-linked buffer. The joint Investment Reporting Group has decided to recommend a weighted index covering four regions.

The data needed to weight the indices are gathered in connection with the collection of quarterly information on the investment distribution and returns on earnings-related pension providers. Thus, the weighting coefficients of share indices are also updated four times a year. The Investment Reporting Group also monitors how well the index predicts the actual return for each quarter.

Data from previous years

Weighting coefficients of the OLV index and the values of sub-indices at the end of each quarter starting from the end of 2006.