Finland’s largest pension provider, Keva, for those working in the public sector, has announced that it intends to increase the risk level of its investment portfolio.

Keva is aiming for a higher long-term return on its investment assets to ensure the sustainability of the fund. In 2017, its expenses exceeded contributions and since then pension expenses have been financed with investment income.

In the future, the importance of investment income in pension funding will increase, but pension payments will remain the largest source of pension funding each year, the fund stated.

Historically, Keva’s investments have performed reasonably well. The real return since the fund was established in 1988, is capital-weighted at 3.6 per cent (non-capital-weighted 4.8 per cent), which means that out of the current fund's €64bn, investment returns are €46bn.

“From the point of view of the pension institution's investment activities, the most important risk is the so-called long-term deficit risk, i.e. the risk that sufficient real returns are not achieved.

"If this risk materialises, pension contributions will have to be increased. In the strategic planning of Keva's investment activities, it has been found that with the current risk level of the investment portfolio, it will be challenging to achieve a sufficient real return that secures a stable payment level in the future,” Keva explained.

Therefore, the board has decided that the risk level of investment operations will be increased significantly in the near future. As the level of risk increases, the expected long-term returns increase.

“An increase in the risk level lowers the long-term deficit risk, but on the other hand, it means that the short-term return on investment assets will fluctuate more than before,” the fund stated.

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