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IPE special report May 2018

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Finnish market shaken up

Finland’s institutional investment market looks set for a radical shake-up following the publication of a comprehensive pensions and insurance report by the Ministry of Social Affairs and Health.
The report, aiming to inject greater competition into the restricted Finnish market – still 85% insurance company controlled – suggests a variety of reforms, including the possibility that companies can transfer assets and liabilities away from insurers.
Tomi Yly-Kynny, managing director at consultant Oy Porasto, explains: “As a company if you are in an insurance company pension contract at present and want to move you can’t take the assets with you. The proposal in the report is that you will now be able to move the assets of the active working population.
Yly-Kynny says the proposals will increase competition as well as the possibility that new foundations and company plans can be set up. “The market is very concentrated at the moment and basically this report is very good at addressing this. I’m a little disappointed that it is still a bit conservative in places, but it is certainly a step in the right direction.”
The report also proposes the introduction of a single IT system to be used by all pension companies in a bid to iron out any technical advantages.
Lauri Oravisto, a mathematician at Oy Porasto, comments: “This is a quite strange proposal. On one side you might say it is right that IT should not give companies any competitive advantages. On the other side in the next 10 years there will be some enormous changes in technology, so you cannot suggest everyone uses a basic system.”
Another of the report’s proposals is that pension providers be allowed to set their own interest rates for the TEL non-insured portion of pension savings – now based on a set level.
However, Oravisto notes the gap between idea and reality: “In my opinion a well-run pension foundation could lessen its future payments with a higher interest rate. This will almost certainly not happen though, because a company would only be able to increase competition by lowering interest rates and payments.”
Greater transparency on investment performance is also called for by the report, which suggests pension fund entities should publish comparable results.
Oravisto notes a lack of universal agreement though in Finland: “ Pension foundations are extremely nervous about releasing figures showing the difference between their book value and market value, and the insurance companies are hounding for this.
“Undoubtedly, more financial results should be published. I can’t understand why the foundations should be worried. They are not in competition with company funds and most have been more efficient than insurance companies over the years and probably will be in the next five years.”
The ministry is currently requesting ideas from different parties in Finland with responses expected before the end of March.

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