The Finnish pension reforms, particularly the shift towards a higher equity weighting in pension investments, will benefit younger generations in the long run by improving returns, Veritas chief investment officer, Laura Wickström, has said.

In a blog post, Wickström addressed the concerns about young people bearing the risk after the central labour market organisations reached an agreement on the earnings-related pension reform just over a week ago.

The Finnish government accepted the proposal and said it met the objectives set for the reform.

The reform changes how pension funds allocate their assets, allowing companies to increase the equity weight in their investment portfolios by approximately 10 percentage points. Currently, pension companies invest slightly over 50 per cent in equity.

Wickström suggested that the reform mattered as increasing equity allocation is the primary way to raise long-term return expectations. This change would reduce the chance that younger generations will have to pay higher pension contributions later due to the falling birth rate.

This shift is significant in light of the growing concerns raised by The Finnish National Youth Council, which called for a pension system that ensures generational fairness and does not leave young people with the financial burden of an ageing population.

Wickström added that the agreed amendments would increase the expected return on earnings-related pension assets by approximately 0.3 percentage points from the current level.

However, Wickström stated that increased equity weighting means a greater fluctuation in returns, suggesting the need for the pension system to be strong enough to withstand this.

She said that this has been accounted for in the reforms, with the security level being lowered from 97 per cent to 95 per cent.

In addition to this, the reform also changed how pension funds can invest in real estate, as now funds are allowed to use leverage for all types of real estate investments. Wickström said that this frees up capital to increase the weight of equities.

“Future generations will benefit from increasing the likelihood of higher investment returns,” she said.

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