Regulating pension insurance
Earnings-related pensions are governed by acts and decrees. The Ministry of Social Affairs and Health
- prepares the laws on insurance providers and insurance activities, and
- issues provisions and decisions.
Earnings-related pensions are governed by the following acts (available only in Finnish and Swedish):
- the Employee Pension Insurance Companies Act,
- the Insurance Companies Act,
- the Act on the Financial Supervisory Authority,
- the Act on the Finnish Centre for Pensions,
- the Act on the calculation of a pension provider’s solvency limit and on the covering of the technical provision,
- the Pension Funds Act,
- the Insurance Funds Act,
- the Keva Act,
- the State Pension Fund Act,
- the Act on the Financing of State Pensions, and
- the Act on the Financing of the Pensions for the Employees of the Evangelical-Lutheran Church.
The Financial Supervisory Authority gives pension providers more detailed regulations and instructions on, for example,
- accounting and the annual accounts,
- the calculation of the technical provisions, and
- the solvency requirements.
Competition and cooperation
As a rule, the laws on competition are also applied to pension providers since they pursue economic activities as referred to in the laws on competition. However, pension providers have an exceptional status in this case since they implement mandatory and statutory pensions. That activity is mainly based on the principle of joint liability.
The laws on competition that are applied to pension providers are, primarily, the stipulations of the Treaty Establishing the European Union, and secondarily, the national act on restriction of competition. The aim has been to harmonise the latter with EU laws.
Under the Employees Pensions Act (TyEL), the pension providers have to prepare the insurance terms and conditions and the actuarial principles together. They also have to cooperate in gathering statistics and in other matters relating to the implementation and development of the earnings-related pension acts.
Stipulations on financial management of pension providers
Pension providers’ assets are to be invested productively and safely and taking into account the possibilities to capitalize the assets. Investing the assets productively involves risks. To buffer the risks, pension providers (pension insurance companies, company pension funds, industry-wide pension funds and the Seafarer’s Pension Fund) have a solvency capital (the difference between assets and liabilities). The solvency capital allows pension providers to allocate investment to instruments with higher yield expectations but also higher risks.
The amount of the solvency capital of earnings-related pension providers is regulated under law. A pension provider’s solvency capital must be at least as high as its solvency margin in order for the pension provider to be able to operate normally. Pension providers calculate their own solvency margin. The margin is set so that solvency capital is most likely to be intact after one year, taking into account the insurance and investment risks. For extreme situations, the solvency capital has a legally defined minimum capital requirement, which is one third of the solvency margin. The maximum solvency capital is three times the solvency margin, but at least 40 per cent of the technical provisions.
The Farmers’ Social Insurance Institution, Keva and the State Pension Fund have no equivalent solvency regulations. The investments of the Farmers’ Social Insurance Institution are subject to investment diversification regulations.
Pension insurance companies, industry-wide and company pension funds and specialised pension providers must also draw up a risk and solvency assessment and an investment plan. These are regulated by the acts on earnings-related pension insurance (for example, by the Earnings-related Pension Insurance Company Act). In addition, the Financial Supervisory Authority issues more detailed regulations on the content of the investment plans.
The acts and the regulations and instructions issued by the Financial Supervisory Authority aim to make sure that the pension insurance companies are able to meet their insurance commitments. In case of bankruptcy, the pension providers (earnings-related pension insurance companies, company pension funds and industry-wide pension funds and the Seafarer’s Pension Fund) are collectively liable for the pension benefits.