In addition to the mass of compulsory schemes there is also a small tranche of additional, voluntary pension provision by what are known as pension foundations. Combined with the statutory schemes, they aim to give a salary replacement of 60-66%.
But Folke Bergstrom, secretary general of the Association of Finnish Pension Foundations, notes a question mark hanging over their future. “Since 1962 when the statutory pension came into force it has grown continuously and is still growing,” he says. This means that the relevance of the supplementary pension cover is decreasing all the time. This is especially the case with younger people.”
Membership has declined from 35,000 in 1999 to 30,000 this year. Assets undermanagement have shrunk from E5.4bn to E4.9bn over the same period.
Almost all of the additional pension schemes have been closed for some years; many were closed in the 1980s. “They closed because of cost reasons and because the employer realised that the statutory scheme already gives a lot of cover,” says Bergstrom. “The decline is slow but after a time all will close.”
He adds: “From next year, following the pension reform in Finland, you will be able get over 60% of final salary from the statutory pension system so the need for additional cover will decrease.”
The closure of schemes means that their age profile will get older. Bergström agrees that this will make the overall profile of asset allocation less risky, with a gradual move to bonds, and that a more liquid asset profile will also result.
But it’s not all downhill for Finland’s additional pension schemes. Until they have been restricted to defined benefit but, as Bergström notes, “we are thinking about defined contribution (DC) and hope that we will get legislation next year. If DC schemes are allowed we hope to see the growth of additional schemes again.”
There are also attractions on the investment front. Legislation on investing allows greater freedom for the additional voluntary schemes. Statutory schemes can cover 50% of their pension liabilities with equities, but for the time being they can only invest in equities quoted on the stock exchange. Additional pension funds on the other hand can cover part of the liabilities with non-quoted equities.
The allocation to equities is certainly higher than for compulsory schemes that are subject to solvency regulations. On average last year additional schemes invested 31.7% of the portfolio in equities compared with 29.3% in the previous year. Meanwhile bonds accounted for 26.7% compared with 23.1% in 2002.
Perhaps there is hope yet.

Topics