Press release: Earnings-related pension assets rose by EUR 6.2 billion in the first quarter of the year

07.06.2017

Finns’ earnings-related pension assets totalled EUR 194.7 billion at the end of the first quarter of 2017. Despite uncertainties associated with the financial market, the beginning of the year has been strong from the investor’s point of view. During the first quarter, the amount of earnings-related pension assets rose by EUR 6.2 billion. These data are revealed by the statistical analysis of the Finnish Pension Alliance TELA.

“Considerable optimism has prevailed on the financial market this spring. This was also reflected in the returns on the investments of authorized pension providers,” says Analyst Peter Halonen of TELA.

The level of pension assets is now at an all-time high. The real return on investments came to 2.8 per cent in the first quarter.

“Expectations of economic growth have risen globally, as various countries around the world have reported positive figures on the real economy. On the whole, the economic figures have been very encouraging in terms of factors such as economic growth, employment, the financial performance of companies and inflation,” Halonen lists.

The indicators measuring confidence among various economic players also suggest a positive current. Above all, optimism was reflected as a favourable trend on the stock market.

“On the other hand, the first months of the year were characterized by political risks on both sides of the Atlantic. There is also the risk that the major central banks may take measures to tighten monetary policy this year,” Halonen points out.

Investments in equities continued to rise

Again, the best returns were received on the stock market. Last year, the share of investments in equities and equity-like instruments exceeded 50 per cent for the first time, and was EUR 99.4 billion (51%) at the end of March. Fixed-income investments accounted for EUR 79.2 billion (40.7%) of the assets, while real estate investments came to about EUR 16.2 billion (8.3%).

A higher employment rate vital for financing pensions

Pension assets are put into funds and invested because some of the financing needed for pensions is covered by these assets. At present, investment assets and their returns cover nearly a quarter of the annual expenditure on pensions paid to private-sector wage-earners. However, most pensions are financed by the pension contributions paid by the working population.

“The development of employment and economic growth in Finland are absolutely essential for the sustainable financing of pensions. They determine how much of the assets needed for the payment of pensions is obtained from pension contributions,” Halonen states.

The most recent long-term prognosis by the Finnish Centre for Pensions was calculated by assuming that both the employment rate and economic growth will improve slowly. The current employment rate, 69.2 percent, and its trend are in line with the assumptions made in the calculation.

“if the economy and employment improve faster than assumed, this would support the financing of pensions and would reduce the pressure to raise pension contributions in the 2020s. For wage earners, this would mean more money in hand, while employers would have lower labour costs,” says Halonen.

Preparations made for uncertain times on financial markets

The rules set for the solvency of private-sector pension insurers regulate investments. These rules require that pension insurers accumulate a buffer to prepare for market fluctuations. The rules also regulate risk-taking in investments.

“Pension insurers’ solvency has remained strong. Thanks to this, they are well able to withstand occasional market fluctuations,” Halonen explains.

“Regulation of solvency was revised at the turn of the year. It has provided opportunities for greater risks in investment while regulating and monitoring risk-taking more strictly.”

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

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.

The series of graphs describing the short-term and long-term trends of earnings-related pension assets are available on the page “Investment assets trend”. A more detailed analysis of the amount and allocation of earnings-related pension assets and the return on investments will be published in the coming weeks on our page “Investment analysis”.

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.