Finnish occupational pension funds grew by €6bn during the third quarter of 2024, with a total of €267bn in assets at the end of the period, according to Finnish Pension Alliance (Tela) figures.

Tela said that earnings-related pension investments continued to develop positively in the third quarter of the year.

It also revealed that the nominal yield on earnings-related pension assets for the year up to 30 September 2024 was 7.4 per cent, while the real yield, adjusted to remove the effects of inflation on total return, was 6.8 per cent.

Tela chief economist, Mikko Mäkinen, said that decreased inflation and central banks’ rate cuts “boosted” yields on fixed-income investments.

“International stock markets developed favourably in the third quarter. In particular, American stock markets performed strongly, led by tech companies,” Mäkinen added.

“In addition to them, alternative investments performed well. By contrast, property investments made a slight loss.”

Tela also noted that the total value of earnings-related pension assets has grown since the end of 2022.

It said despite earnings-related pensions being mainly funded by the earnings-related pension contributions collected annually, the significance of pension assets and the yields on their investments was growing constantly. Tela credited this to declining birth rates and an ageing population.

“At present, around one fifth of private-sector earnings-related pensions is funded by assets and their yields. That share will rise in the near future to a quarter. In other words, 25c of every €1 paid as pensions will come from funds,” Mäkinen explained.

Tela acknowledged that pension providers expect future pension reforms to change regulations on earnings-related pension asset investments, allowing them to pursue slightly better investment returns. However, the reform was not expected to generate quick wins.

Mäkinen said that funding earnings-related pensions using investment yields was a long-term job and Tela would not be able to assess the results of the investment reform for several years or even decades.

In practice, the investment reform would mean increasing the level of investment risk and requiring investors to withstand low yields, potentially for long periods.

“When investing in earnings-related pensions, long-term yields are significant, as the liabilities for paying future pensions extend several decades from now,” Mäkinen said.

The average real yield on assets since 1997 has been 3.9 per cent annually.

Tela research also found that at the end of September 2024, the equity and equity-type investments' real yield was 10.1 per cent, fixed-income investments' real yield was 3.8 per cent, property investments' real yield was -0.9 per cent and alternative investments' real yield was 5.1 per cent.

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