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Former Keva chairman calls for end of private pensions in Finland

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The Finnish Pension Alliance (Tela) has criticised the recent suggestion of Sampsa Kataja – a local MP and former chairman of Finland’s local government pension institution Keva – that the country’s pensions landscape should be simplified into a monopoly of one public pension institution.

Kataja, currently serving as an MP for the centre-right National Coalition Party, told Finland’s national public service broadcasting company last week that the current system, which consists of several institutions for statutory pensions, should be dismantled and a public monopoly established instead.

According to Kataja, supervising a single and public institution would be easier and more profitable than the current setting of several public and private bodies for statutory pensions.

“Pensions and contribution rates are defined in the law, meaning there is no real competition in the market in any case,” he said.

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“It has been seen that a public entity – Keva, that is – can look after pensions for smaller cost and in a more just manner. In addition, their investments have yielded more than those of private pension insurance companies.

“A public monopoly would serve the interests of pension savers better than the current setting, where competition is only nominal.”

Kataja also argued that the current system wastes resources on high management costs and paying bonuses to the companies that switch insurance companies.

“A single institution would be easier to supervise than a system consisting of several players,” Kataja said.

“One large actor would also have the best chances to perform well in terms of investment returns.”

Suvi-Anne Siimes, managing director at Tela, responded to Kataja’s proposals by pointing out that the main task of the occupational pensions system was to secure pensions for current and future pensioners.

Tela represents all statutory earnings-related pension insurance institutions in Finland.

“There is a strong basis for the current, diversified model in Finland, the most important duty of which is to secure statutory pensions,” Siimes told IPE.

“In the Finnish occupational pension system, unlike in so many other countries, pension assets are kept separate from the state budget.

“This means the funds cannot be used for anything else except paying out pensions – for example, for balancing state or municipal economies in harder times, unlike in some other countries in Europe, as seen recently.”

The current structure also reduces investment risk, as each institution follows its own investment strategy, Siimes said.

“In a more centralised system, investment portfolios would also be more centralised, which would increase investment risk in the whole system,” she added.

“In the current system, if one investment fails to perform well, another one will balance it.”

In early 2013, the Finnish Centre for Pensions published a study comparing the costs of the Finnish occupational pensions system with corresponding systems in other countries.

It found that the operating costs of the Finnish system were the lowest in the Nordic region, and that the pensions landscape comprised fewer institutions than in other countries researched.

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