Debate has been hotting up in Finland over the setting by the government of technical interest rates for retirement benefit payments at 5.5%.
The rate is the annual level which insurance companies, pension funds and foundations are obliged to return their members for their pension contributions.
Discussion has focused on whether the 5.5% rate, which was previously set at 5.25% and is linked to the average solvency of insurance companies, has been set too conservatively bearing in mind recent strong growth in the Finnish economy.
The rate functions as the minimum return requirement on pension assets and some insurance companies and employers appear keen to see the rate set as low as possible.
During the summer, insurance companies in Finland collectively settled for a rate of 5.75%. However, after hearing the opinions of pension funds and foundations the companies applied for an interest rate of 5.5 %, which was accepted by the Finnish Ministry of Social Affairs.
Lauri Oravisto, a mathematician with Helsinki-based consultant Oy Porasto, believes that technically the rate could be upped. “I actually believe that 6% would be a reasonable minimum rate. A number of insurance companies such as Ilmarinen are in very good financial shape. However, there are a number of foundations, which are in a very precarious situation due to loans that were made with foundation money to the company.
“In fact, the liabilities of these pension foundations in the TEL first pillar pensions system is 16 % of the liabilities of all pension foundations and less than 3 % of all TEL liabilities, thus their influence should be minimal in setting the interest rate.”