As the population has aged and the earnings-related pension system matured, the role of funding in the financing of pensions has grown considerably. Funding can be used to level out the intergenerational contribution burden, which would be much heavier in a system that relied solely on a pay-as-you-go method.

The collection of articles, Sijoitustoiminta Suomen työeläkejärjestelmässä (investment operations in the Finnish earnings-related pension system), paints an overall picture of the investment scenery­­, related risk management and regulations and their trends in the Finnish earnings-related pension sector.

The book consists of nine expert articles, which can stand as independent entities or form parts of a larger story. The book supplements the discussions in the book titled Työeläkevarat ja eläkkeiden rahoitus (investment operations in the Finnish earnings-related pension system) published in 2019 on the financing of Finnish pensions and the special features of investment operations.

“The book is intended as a general reference book through which experts in the field and others interested can familiarise themselves with the central features of the investment operations of the Finnish pension sector,” explains economist and co-editor Sanna Tenhunen (Finnish Centre for Pensions).

From current to future

The collection of articles has been divided into three sections and aims to take into account the special structure and legislation of the Finnish earnings-related pension system.

The first section of the book focuses on the financing of the Finnish earnings-related pension system and its trends. The second section of the book handles the investment operations of the earnings-related pension system and its governance, solvency regulations and risk management.

The third part is, by nature, more interactive. Bearing the future in mind, issues relating to solvency regulations and investment operation trends are considered in this section.

“The book has an extensive time perspective: although the main focus lies on the present situation, it is important to understand the history that has led up to this point, as well as what the trends have been,” says co-editor of the book, development manager Eeva Poutiainen (Finnish Centre for Pensions).

Investment returns greatly affect contribution levels

In the long run, investment returns greatly impact the financing of earnings-related pensions.

In the sustainability projections of the Finnish Centre for Pensions, the long-term real return assumption is 3.5 per cent. If the long-term return rate is one percentage point lower than the baseline projection, the long-term upward pressure on contributions would be an ample three percentage points.

Correspondingly, a one percentage point higher return would mean that pensions could be financed with contributions that are an ample four percentage points lower.

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Articles and authors:

• Pension expenditure, contributions, assets and investment returns of the earnings-related pension system in Finland
  Kimmo Koivurinne (Analyst, Finnish Pension Alliance TELA) and Risto Vaittinen (Chief Economist, Finnish Pension Alliance TELA) write about the trends in pension expenditure, contributions and benefits from the early days of the pension system to the present.
• Financing methods of pension systems in Finland
  Roman Goebel (Head of Actuarial Affairs, Keva) examines the differences in the financing of public and private sector pension systems.
• Pension providers’ solvency, its regulations and supervision
  Hillevi Mannonen (FASF Actuary) presents an overview of the solvency regulations relating to private sector pension providers’ financing and investment operations.
• Steering earnings-related pension providers’ pension asset investments
  Niina Bergring (Director, Asset Management, Aktia Bank), reviews the framework for investment operations created by regulation and investment regulation from the point of view of a private sector earnings-related pension provider.
• Steering investment operations in public pension funds
  Timo Viherkenttä (Professor, Working life, Aalto University) explains the special features of the investment operations of the public pension fund in his article, both from a Finnish and an international point of view.
• Investing pension assets in practice
  Kari Vatanen (Chief Investment Officer, Veritas) examines the significance of pension asset investments, investment allocations and various investment methods from the early days of the pension system to the present.
• Risk management in earnings-related pension providers and its supervision
  Sarianne Kirvesmäki (Director, Finance and Investment Risk Supervision, Elo Mutual Pension Insurance Company) addresses risk management and its regulation and supervision particularly from the point of view of an earnings-related pension insurance company.
• Funding of pension contributions and risk management
  Petri Hilli (Dr.) and Niku Määttänen (Professor, University of Helsinki as of 1 August 2020) consider the link between funding and solvency regulations and earnings-related pension contribution levels. The article also looks at the advantages and disadvantages of a decentralised implementation of the pension system.
• What does the investment operations of the Finnish earnings-related pension system look like when viewed from afar?
  Mikko Niskanen (entrepreneur and professional investor) looks at the pension system’s investment operations from the outside from an international point of view and from the viewpoint of regulation and investment trends.