Figures released by the Finnish Federation of Employment Pension Institutions show Finnish pension fund assets reached Fim 370.4bn (E62.3bn) at the end of last year, up 22% on 1998 and double the 1994 total. Totals are based on the sum of salaries which have grown substantially in the last five years since Finland emerged from recession. The rise in the premium level of statutory pensions to around 21.5% of salaries has also boosted the total.
“The statutory system was changed at the beginning of 1999 so that companies and pension funds can use some of their income to increase their solvency capital,” says Markku Vesterinen, director general at the Finnish Pension Insurance Supervisory Authority. According to Vesterinen, the buffer between the market value of institutions’ assets and their technical provisions is higher than it was in 1998 and this excess has been invested predominantly in the bond and equity markets.
Bonds remain pension funds’ preferred investment, accounting for Fim157.2bn in 1999, or 42.4% of total assets, down from a peak of 48% the previous year. Equities have proved less attractive but are gaining popularity. Last year investors ploughed Fim105.1bn into equities, more than triple the 1997 figure. In relative terms, the overall share of equity investment has risen from 12.6% to 28.4% between 1997 and 1999; five years ago the figure was a touch over 5%.
The most dramatic change is the exodus from Tel-premium loans, the private statutory pension system, due to poor returns and more lucrative investments. In 1994, almost 29% of funds were invested in Tel-premium loans. This fell to 7% at the end of last year. In nominal terms the total amount invested dropped from Fim53.7bn to Fim25.9bn over the same period. Vesterinen says most of the freed capital initially went to the bond market but that increased returns on equities attracted substantial quantities from 1998 onwards.
Money market investments have dropped slightly from Fim31.7bn at the end of 1997 to Fim27.6bn. Its share of the total has dropped from 12% to 7.4% in the past two years. Investment in real estate and real estate shares as well as loans to affiliated companies have risen in line with the overall increase while maintaining a relatively consistent market share.