Finnish industry welcomes new solvency law for pension funds
FINLAND - Pension insurance companies in Finland have welcomed legislation to reform the country's solvency regime, allowing investors to avoid a shift away from equities as a result of the current market environment.
The country's parliament yesterday voted in favour of a law effectively combining existing investment and insurance risk buffers - creating strengthened solvency reserves for pension providers.
Jaakko Kiander, head of pension policy at €27bn Ilmarinen, noted that the law was not, in effect, a new one, following several temporary changes ratified in 2008 and 2010.
"It's not an extension of an identical law, but the idea is extended by forming a new, permanent law," he said. "[The idea] is that we would be able to maintain a quite high equity share in the future."
Kiander said Ilmarinen was happy with the new regulation, which passed without major changes despite resistance from opposition parties.
Reijo Vanne, head of economic analysis at TELA, the Finnish Pension Alliance, added that the use of the two buffers did not change under the new law; they were now simply counted jointly when examining the financial health of a company.
Opposition parties argued that pension providers had amassed too large an insurance buffer - used to offset capital losses in a low-return environment - and that contributions should therefore be lowered.
Vanne said the industry was happy with the level of risk it was allowed to pursue, so it was positive the government did not introduce any changes that could have necessitated the sale of equity or a shift towards fixed income.
The concern over a shift in investment strategy was shared by the chief investment officer of one of the country's medium-sized pension companies.
Declining to discuss the change in law publicly, he nonetheless stressed that failure to implement changes or extend the temporary law beyond the end of the year would have impacted investment decisions, "which would have risked expected returns and might have caused more pressure for pension payment levels".
Pension insurance companies in Finland face significant drawdowns each year, with the €5.3bn Etera last year paying €1bn in pensions, while the €34bn Varma paid out €4.2bn in benefits.