Press release: Earnings-related pension assets rose by EUR 2.3 billion in the third quarter of the year

11.12.2017

Finns’ earnings-related pension assets at the end of the third quarter of 2017 totalled EUR 198.9 billion. Acceleration of global economic growth, and hence the positive trend on the financial market, has been seen as good investment returns for authorized pension providers during 2017. The amount of assets rose by EUR 2.3 billion in the third quarter of the year. The stimulating monetary policy pursued by central banks has played an important role. These data are revealed by the statistical analysis of the Finnish Pension Alliance TELA.

For the second time, the share of equities and equity-like investments exceeded 50 per cent of all investment assets. They totalled EUR 101.0 billion (50.7 per cent). Fixed-income investments accounted for EUR 81.7 billion (41.1 per cent) of assets, while real estate investments came to about EUR 16.2 billion (8.2 per cent).

Return on investments was positive for all types of investment. Again, the best returns were received on the stock market. The real return on investments from the beginning of the year was 5.3 per cent. The real return on equity investments came to 9.7 per cent. Finland and the rest of the euro area continued to increase their share of total investment assets.

Monetary policy has a major impact on pension assets

“The stimulating monetary policy of the major central banks has had a great impact on the growth of pension assets. Lenient monetary policy has had a favourable impact on pension insurers, thanks to the positive development of both the financial market and the real economy,” says Analyst Peter Halonen of TELA.

“Underlying the positive trend on the financial market is the fact that central banks have been very cautious so far when tightening their monetary policy,” Halonen says.

“The big question still is, how we can exit from this exceptionally stimulating monetary policy in a controlled manner so that any negative effects would be moderate with respect to both the real economy and the financial market and investment assets.”

In the third quarter, there was also some other occasional turbulence on the financial market.

“The year 2017 has been marked by political risks around the world. The factors causing uncertainty include the Brexit negotiations, the political situation in Italy, instability on the Korean Peninsula, the fairly rapid weakening of the dollar against the euro, and the possibilities of Trump’s administration to push through important legislative amendments,” Halonen lists.

“The Finnish pension provider operates on the same financial market as any other investor. Therefore, all changes in the international economy are also reflected in the investment returns on pension assets,” says Halonen.

Solvency and diversification of risks protect pension assets

Halonen expects that various bumps will occur on the road towards a normalized monetary policy. However, the strong solvency of earnings-related pension insurers protects Finnish pension assets from market fluctuations.

“Solvency rules require that pension providers in the private sector accumulate a buffer for a rainy day. They also regulate risk-taking in investments,” Halonen explains.

In the public sector, the administrative bodies of pension providers steer investment activities.

Finnish pension assets are also safeguarded by the fact that their management and investment activities in the private sector are decentralized among many actors.

“Authorized pension providers’ differing investment strategies ensure that assets are spread widely across various types of investment and various continents.

Stimulating monetary policy of central banks in a nutshell:

  • By applying a lenient monetary policy, central banks – such as the European Central Bank (ECB) and the Fed of the United States – have striven to revive the economy.
  • The ECB’s policy has been anchored to efforts to raise inflation. As the economy and employment are improving at the same time as wages rise, consumer demand will increase, which should also be visible as rising prices, i.e. inflation.
  • Since 2015, the ECB’s most important monetary policy tool has been the expanded asset purchase programme. Through this programme, debt securities worth over EUR 2,000 billion have been purchased into the balance sheets of central banks in the euro area. Most of these securities are government bonds.
  • Monetary policy has also applied other tools, such as the target interest rate and the deposit rate, the targeted longer-term refinancing operations (TLTROs) and the central bank’s forward guidance.
  • Owing to the monetary policy, states, businesses and household have been able to obtain loans at lower rates, which has helped to revive economic development.
  • The lenient monetary policy has also lowered the value of the euro against other currencies. This, in turn, has boosted exports from the euro area to other countries.
  • In the third quarter, the market was troubled by fears that central banks would tighten their monetary policy faster than anticipated. However, these fears were assuaged quickly as the quarter advanced, since the central banks’ measures to tighten the monetary policy have remained moderate.
  • With the favourable economic trend, there is even reason to adopt a stricter monetary policy. This is encouraged, among other things, by the need to prepare for crises: it is important that, when the next financial crisis comes, extra stimulus capacity is available.
  • In addition to monetary policy, major economic recovery measures include structural reforms, for example on the labour market, and investments to increase productivity.

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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 published in the coming weeks on the Investment Analysis page of TELA.

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.