Comparison of earnings-related pension investors speaks of fluctuating returns

The exceptional investment strategy of the Danish ATP pension fund proved to be the most successful over the 10-year review period, despite the low returns in recent years. An international comparison of investment returns shows that, in recent years, the returns of the Finnish earnings-related pension insurance companies have been favourable. In the long run, however, they lag behind.

The first international investment return comparison carried out by the Finnish Centre for Pensions includes a total of 23 earnings-related pension investors. The comparison covers the major Finnish earnings-related pension providers, as well as large investors from northern Europe and North America.

The earnings-related pension investors have been divided into two groups based on their risk bearing capacity: those that are bound by sustainability regulations and those that are not. The real returns were reviewed over a one-year, a five-year and a ten-year period between the years 2008-2017.

The Swedes benefitted from stock market development

The investment operations of the Finnish earnings-related pension insurance companies are steered by solvency regulations. They define the allowed risk level in investment operations and the provisions for the investment return.

Last year, the real return of the Finnish earnings-related pension insurance companies was favourable. When looking at a five-year review period, however, the return lags behind that of foreign actors.

When reviewing the return over a period of ten years (2008-2017), only two pension insurance companies reached a real return of more than three per cent: Elo Mutual Insurance Company (3.5%) and Pensions-Alandia (3.4%). At the same time, two of the natural objects of comparison from a Finnish point of view – the Swedish labour market pension insurance companies AMF Pension and Alecta – both received a 5.5 per cent return on their investments.

“There is no significant difference between the equity weight of Swedish and Finnish pension investors, but the Swedes invest heavily in domestic instruments. The favourable development of the Swedish stock markets and the weakening Swedish krona are reflected in the figures,” says Mika Vidlund, Liaison Manager at the Finnish Centre for Pensions.

Danish ATP ranks first in the 10-year review period

The Danish ATP showed the highest real return (8.4%) in the 10-year review period. The investment allocation of the largest Danish earnings-related pension fund differs from that of all other pension funds: 74 per cent of its investment portfolio is in fixed-income investments.

The portfolio did particularly well in the 2008 financial crisis, but in recent years, the return has been considerably weaker.

“ATP did not plunge during the financial crisis, as did the other actors included in the comparison who had put an even greater weight on equities in their investment portfolios. On the other hand, the investment return of ATP was the lowest of all the actors included in the comparison,” Vidlund explains.

Exchange rates favourable for Norway

The other group of the comparison consisted of buffer funds whose investment operations are not limited by solvency regulations. In practice, they can aim for higher returns with a larger and more risky weight on equities. There are, however, country and institution specific differences in the limitations between the actors.

Funds reaching a real return of more than six percent over a 10-year review period included the Government Pension Fund Global of Norway (6.8%), the Canada Pension Plan Investment Board (6.5%) and the Swedish AP4 buffer fund of the old-age pension system (6.3%).

All three strived for high investment returns with a strong weight on equities. Yet, they did not do as well as ATP with its investments in fixed-income securities.

Of the Finnish earnings-related pension investors, public sector pension provider Keva, the State Pension Fund and the Church Pension Fund are buffer funds.

They have reached a steady return of 3.5 per cent and therefore lag behind the top investors.

“Foreign buffer funds have a clearly stronger weight in equities than do their Finnish counterparts. Shares have been favourable investment instruments in the last five years. The top returns of the Norwegian investors can also be explained by the weak Norwegian krona,” says Antti Mielonen, Senior Adviser at the Finnish Centre for Pensions.

Edit: 3 December, 1:50 p.m. The text has been edited regarding Pensions-Alandia: “When reviewing the return over a period of ten years (2008-2017), only two pension insurance companies reached a real return of more than three per cent: Elo Mutual Insurance Company (3.5%) and Pensions-Alandia (3.4%)”. The figures for Veritas and CalPERS in the graph of real return of earnings-related pension investors 2008-2017 has been adjusted with a few decimals. As a result, the order of the earnings-related pension providers changed.

Pension investors operate in different environments

Preconditions of the investment return comparison

  • The starting year and length of the period of comparison affect the results
    • Yearly returns fluctuate greatly
    • Long-term average returns depends on the selected period
  • Currency region and fluctuations in exchange rates generate different results
    • Return expressed in national currency (that is, in the same currency as the pensions are paid)
    • Real return is more suitable for comparison when inflation is excluded
  • The solvency regulations and other regulations limiting the risks of investments set conditions for the investment operations

All of the above affect the results of the comparison.

More information
Mika Vidlund, Liaison Manager, Finnish Centre for Pensions, phone +358 29 411 2614, mika.vidlund(at)
Antti Mielonen, Special Adviser, Finnish Centre for Pensions, phone +358 29 411 2472,  antti.mielonen(at)

Photo: Lehtikuva