Investment Operations of the Earnings-related Pension Scheme
The objective of pension funding and investment operations is to keep pension contributions more stable over time than pension expenditure. As the population ages, earnings-related pension expenditures increase. However, the effect on the contribution level can be significantly reduced through funds. A one-percent increase in the long-term real average return of investments reduces the pressure to raise the contribution level by approximately two percentage points.
In the private sector, pensions have been funded already since the initial stages of the scheme, whereas in the public sector, pensions have been funded for slightly more than two decades. The funding follows different principles in the private and in the public sector, and the investment rules are also different.
At year-end 2016, the total earnings-related pension assets totalled approximately EUR 189 billion, of which EUR 118 was within the private sector. The largest proportion of assets was invested in shares:
- shares 42%
- bonds 32%
- other investments in interest-bearing instruments 9%
- real estate 8%
- hedge funds 8%.
The share of investments in Finnish objects has declined in recent years, while the share of investments in countries outside the eurozone in particular has grown. Of the total investments, approximately
- 26% were in Finland
- 19% were in the rest of the eurozone, and
- 55% were outside the eurozone.
At this site, we describe the boundary conditions of the investment operations, the allocation and returns of investments. The Finnish Pension Alliance publishes statistical information every quarter year on investment allocation, performance and volatility.
The law stipulates that pension assets must be invested profitably and securely. The issue is phrased slightly differently in the acts concerning various pension providers, but the central intent is the same. The regulation means that the investment operations cannot focus solely on minimising risks or maximising profit. Instead, a compromise between these two opposing goals must be aimed for.
Each pension provider makes an independent investment decision, and the board of directors of the pension provider in question is responsible for its investment operations. Private-sector pension providers must draw up an annual investment plan, which the board of directors approves. Naturally, although they are not under legal obligation to do so, public-sector pension providers also draw up investment plans.
Private- and public-sector pension investment operations are presented separately on this site because the rules governing them differ significantly from each other in terms of risk coverage and liability and solvency calculations.