Press release: Earnings-related pension assets rose by EUR 1.8 billion in the second quarter of the year

05.09.2017

Finns’ earnings-related pension assets at the end of the second quarter of 2017 totalled EUR 196.6 billion. For investors, the year 2017 has continued its positive trend. During the second quarter, the amount of earnings-related pension assets rose by EUR 1.8 billion. The positive economic developments were visible particularly in returns obtained from the stock market. The increase in pension assets also helps secure future pensions. These data are revealed by the statistical analysis of the Finnish Pension Alliance TELA.

“Expectations of economic growth and companies’ financial performance have improved both globally and in Finland. This was also reflected in the returns on investments made by authorized pension providers,” says Analyst Peter Halonen of TELA.

The real return on investments came to 3.8 per cent in the second quarter. Pension assets have risen every quarter during the past year, and their level is now at an all-time high.

On the other hand, the first half of the year was also marked by political risks on both sides of the Atlantic and by uncertainty about China’s continued economic growth.

“The French presidential election, preparation for the exit of the UK from the European Union, the political situation in the United States and instability in the Korean Peninsula caused uncertainty on the financial market,” Halonen explains.

“A particularly clear indication of pension insurers’ preparation for risks was the growth of short-term receivables, such as money-market investments, which were considered to have small risks,” says Halonen.

Finland and the rest of the euro area increased their share

Again, the best returns were received on the stock market. At the end of June, equities and equity-like investments totalled EUR 97.1 billion (49.4 per cent). Fixed-income investments accounted for EUR 83.4 billion (42.4 per cent) of assets, while real estate investments came to about EUR 16.1 billion (8.2 per cent).

After a long break, Finland and the rest of the euro area strengthened their role in pension insurers’ investments. The net flow of assets was as much as EUR 2.5 billion to Finland and EUR 0.9 billion to the rest of the euro area, while the percentages and sums of investments outside the euro area declined.

“The underlying reasons include the election result in France that calmed down market actors’ fears of increasing divergence within the EU, as well as the positive financial figures reported by companies in the euro area for their first quarter.

Funds help secure the financing of pensions

The adequate financing of pensions for present and future generations has been a topic of debate in Finland lately.

“For the financing of pensions, more important than the return on investments is to examine the expenses and income of the pension system over the long term,” says Halonen.

Pension expenditure will rise markedly over the next 15 to 20 years.

“Finland’s economic growth and employment trend are crucial for the sustainability of the pension system. They determine how much of the assets needed for financing pensions ca be obtained from pension contributions. Most pensions are financed by pension contributions,” Halonen points out.

Pension assets are invested because some of the financing needed for pensions is covered by these assets. In this way, the level of pension contributions can be kept lower than it would be if assets were not put in funds.

“The volume of pension assets indicates that, in international comparison, Finland has prepared well for population ageing and rising pension expenditure.

For example in 2016, the net sum from funds and their returns that was used for pensions came to EUR 1.0 billion for the whole pension sector.

“In the coming years, more and more assets will be used for financing pensions in a controlled manner,” Halonen explains.

TELA’s statistical analysis with regard to pension assets comprises data on investments made by pension insurance companies, industry-wide pension funds, company pension funds, the pension liability fund for the employees of the Social Insurance Institution, Keva, the Church Pension Fund, the Farmers’ Social Insurance Institution, the Seafarer’s Pension Fund, the Pension Institution of the Bank of Finland and the State Pension Fund. The statistics only cover the statutory earnings-related pension assets.

A complete analysis of the amounts and allocation of investment assets will be available on the Investment Analysis page of TELA within next few weeks.

Inquiries:

Peter Halonen, Analyst, tel. +358 10 680 6731

The Finnish Pension Alliance TELA looks after the interests of all authorized pension providers operating in Finland. TELA’s membership comprises all insurers providing statutory earnings-related pensions.