Investment allocations, realized returns and solvency ratios

The Finnish pension investment assets amounted to 193.4 billion euros at year-end 2018. The private sector accounted for 121.4 billion euros. The investment portfolios of the various actors decreaced throughout the year. The assets of the earnings-related pension insurance companies reduced by around 2 per cent and of company pension funds and industry-wide pension funds by 25 per cent year-on-year.

Approximately 34.1 billion euros, or close to 30 per cent, of the private sector investments at year-end 2018 were invested in Finnish instruments. Almost 20 per cent was invested in other countries in the euro zone and more than 50 per cent elsewhere. Countries outside the euro zone include the other Nordic countries, Great Britain, Switzerland, the United States, and the  developing markets.

The website of the Finnish Pension Alliance TELA contains more statistics on asset allocation per investment type and area.

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Return on investments

The return on pension asset investments can be monitored based on the rate of return, for example, by type of investment. In the long term, there is no great fluctuation in the realised return for different types of investments. The annual nominal average return of interest-bearing investments has been around four per cent and that of investments in shares and share-like instruments nearly seven per cent. Investments in real estate have yielded an annual return of close to six per cent.

Private sector investment allocations come with lower risks, which means that the return fluctuation is also smaller than in the public sector. The main reason for the lower risk in the private sector are the solvency regulations, which do not exist in the public sector.

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Solvency ratios

The solvency of an earnings-related pension provider requires that the pension provider has a sufficient risk-bearing capacity. A high return and a low risk level are generally contradictory goals, so higher investment returns come with higher investment risks.

The solvency ratio of a pension provider is calculated as the ratio between the pension assets to its technical provisions. This ratio varies greatly from one pension provider to another.

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