Public sector earnings-related pension investments
The pension assets of the employees of bodies governed by public law are administered by five pension providers: Keva, the State Pension Fund, the Central Church Fund, the pension fund for the employees of Kela, and the pension provider of the Bank of Finland. At year-end 2018, the total public-sector investments assets amounted to 72.0 billion euros.
At year-end 2018, Keva had 50.1 billion euros in investment assets and the State Pension Fund 18.5 billion euros. Keva is the largest and the State Pension Fund the fifth largest investor of earnings-related pension assets. In the local government pension scheme, funding began in 1988, and in the state employees’ pension scheme, in 1990. Up to the year 2000, the assets of the State Pension Fund were invested in government bonds only.
Of the public-sector earnings-related pension assets, more than 50 per cent were invested in shares and share-like instruments. The proportion of foreign investments totalled over 80 per cent of all investments. The proportion of investments in shares and foreign investments were higher than in the private sector although the gap has clearly narrowed in recent years.
The higher proportion of investments in shares and foreign investments in the public sector is explained by the difference in funding mode. The public-sector pension providers function without competition in their own sector. By nature, the assets are mainly buffer funds in terms of the increase in the ratio of pension expenditure to the wage sum.
For instance, Keva strives to keep the pension contribution stable with the help of the accumulated assets. The assets are accumulated and dissolved with this objective in mind. The State Pension Fund, on the other hand, aims for a long-term funding rate of 25 per cent. As for the earnings-related pension expenditure under the State Employees’ Pensions Act, 40 per cent of the expenditure is financed annually from the State Pension Fund.
In the public sector, the amount of the employee’s accrued pension rights has been determined but not the share funded from it . Thus, the pension liability to be covered has not been determined. The investment operations are based on the target allocation of investment objects as decided by the administrative bodies. Limited deviations can be made on the basis of, for instance, interest rate or share price developments.
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Return on investments
Keva aims to support a predictable and long-term stable contribution level through its investments. The State Pension Fund sets its targets annually to secure the financing of its future pension liabilities.
More information on how the return of pension asset investments is formed and the rates of return is presented at the website of the Finnish Pensions Alliance TELA.
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