The collective assets managed by Finnish earnings-related pension providers shrank by €7bn in the first quarter, equating to a collective investment loss of 5.3% in real terms, according to pensions alliance TELA.

However, the lobby group said in an analysis that since solvency had been very strong at the end of 2021, the occupational pension system could weather the Q1 asset value falls.

Kimmo Koivurinne, analyst at the Helsinki-based association, said: “Despite the very difficult global situation and challenging investment conditions, Finnish earnings-related pension assets decreased by only about €7bn during the first quarter.”

At the end of March, total assets in the system amounted to €248bn, he said.

“The decrease was mainly due to the fall in the market value of listed shares,” the analyst said, adding that another factor had been the rise in interest rates during the first half of the year, which had also made fixed-income investments unprofitable.

In real terms, the collective investment return was minus 5.3%, and 2.2% in nominal terms, according to TELA.

Koivurinne said that despite the “small” reduction in funds in the first quarter, the financing of the employment pension scheme had a sustainable basis.

“We started from good positions in difficult times,” he said, adding that private-sector occupational pension insurers’ solvency was strong, with earnings-related pension assets having increased by around €33bn in 2021.

“Thanks to good solvency, pension insurers are well able to withstand the occasional fluctuations in the market,” he said.

Domestic asset share at 25-year low

While there had been no significant changes in asset allocation in regard to asset type in the first three months of the year, TELA reported that there had been a small change in the regional distribution of investments in the portfolios on average.

The relative share of domestic assets fell to 22.2% – its lowest level since 1997, according to the lobby group.

The majority of investment assets were in the non-euro area at the end of March – 61.4% – with the remaining 16.4% in the euro-zone, said TELA.

Koivurinne compared the 5.3% loss to returns seen in previous crises, saying the last time there had been a drop in earnings-related pension assets had been the first quarter of 2020, when portfolio values shrank by 9.6% at the onset of the interest rate crisis.

In the financial crisis, however, the real return for the full year 2008 had been minus 19%, he said.

The outlook for the rest of the year was uncertain, he said, citing factors such as the war in Ukraine, and inflation forcing central banks to limit liquidity in the market.

The analysis includes data on pension insurance companies, the TyEL funds of company pension funds and industry-wide pension funds, the Kela employees’ pension fund, Keva, the Church Pension Fund, the Farmers’ Pension Fund, the Seamen’s Pension Fund, the Bank of Finland’s Pension Fund and the State Pension Fund.

Only statutory earnings-related pension cover is included in the statistics, TELA said.