FINLAND - The VR Pension Fund, which covers the employees of the Finnish State Railways, has announced it will transfer its statutory pension liabilities to Varma, the €28.3bn mutual pension insurance company, by the end of year.
The move follows an ongoing trend in Finland to dismantle corporate pension funds and transfer their liabilities to mutual pension insurance companies - a strategy which has intensified during the recession and allowed the market to become more concentrated by mutual pension insurance firms.
Over recent months several companies, including Rautaruukki, Kemira, Evli, Autotarvike and Finnish Fur Sales, have all closed their statutory funds and transferred the liabilities to insurance-based pensions providers.
The decision from VR's executive board has been criticised by Tuomo Puumala, deputy leader of Finland's ruling Centre party, and disappointed the Finnish corporate pension fund sector, which is concerned that the changing landscape could mean corporate funds become an exception, rather than the norm.
VR managing director Mikael Aro said that by transferring the management of VR's statutory pensions to Varma, VR Group can now "focus more than before in developing its core business and personnel as part of a vast programme of reforms."
Aro also said Varma had been selected over Ilmarinen but the transfer requires the approval of the Insurance Supervisory Authority, Varma's board of directors and employer companies belonging to the VR Pension Fund.
VR Pension Fund had total assets under management worth €1.02bn in September 2009. Statutory pension assets for some 12,000 employees make up €471m of this.
Importantly, the supplementary pension liabilities of VR Pension Fund, amounting to €557m, will continue to be managed in-house by the fund's managing director Hannu Hokka.
Industry experts and local corporate pension fund managers have refused to openly comment on the developments, but many are critical of the shift towards insurer-led pensions management.
One industry player commented: "The [VR] development shows how Finland's corporate pension funds will become extinct to the advantage of the two giant insurance companies, unless legislation is changed to guarantee the competition of the two structures better. This is a major blow to the corporate pension fund sector."
Companies have, in most cases, made use of the existing legislation when dismantling existing pension plans. At present, the legislation requires companies wind up their pension funds to transfer assets worth only 12.1% of their solvency to the pension insurance company.
A transfer of assets to an insurance company has become particularly attractive, according to experts, because most corporate funds have sound solvency, worth on average 27%, and existing legislation allows companies to pocket the difference.
However, pensions experts forecast the situation will lead to the end of the corporate pension sector unless legislation is changed.
"The market is evolving in such a way now that there can either be victory or Waterloo for the corporate funds in the future," said pension expert.
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