Keva, the €46.6bn pension fund covering local government staff across Finland, said its investments returned 4.2% in the first nine months of this year, up from the 1.9% generated in the same period last year, even though risks had since been been reined in.

Timo Kietäväinen, the pension fund’s chief executive, said: “Keva’s investment performance has been good this year, especially as we have kept lowering the risk level of our investments significantly for more than a year now.”

But he warned that the remainder of this year was overshadowed by uncertainty on the capital markets.

The market value of investments grew to €46.6bn at the end of September from €43.1bn at the same point in 2015.

Kietäväinen said that, compared with these short-term results, there was a much larger challenge at hand in safeguarding the longer-term funding of Keva’s pensions in the midst of the social and healthcare reform. 

“If a transitional contribution between the pension systems is not outlined as part of the social and healthcare reform’s freedom-of-choice principle, the odds for funding pensions with tax increases are high,” he said.

If the long-term funding of the Finnish earnings-related pension system is to be sustainable, it is crucial that Finland be able to strengthen its competitiveness and increase employment, Kietäväinen said.

Keva’s fixed income investments returned 5.7% in the first nine months of the year, while listed equities and equity funds returned 2.6%.

Property, including real estate funds, made a 2.6% return, and private equity investments and unlisted equities generated an 8% return. 

Hedge funds, however, made no return over the period.

Ari Huotari, the pension fund’s CIO, said that, so far, 2016 had been yet another exception to the norm, with interest rates falling to levels no one could have predicted. 

“The actions taken by the central banks and the lack of alternatives have bolstered higher-risk markets such as equities,” he said.

Looking ahead to the rest of the year, he said the election results in Italy and the US had the potential to rock the markets in a big way.