Finnish pension providers delivered strong investment returns in 2024, despite a "challenging" time in the real estate investment market and a weak economic situation in Finland more broadly.

Finnish earnings-related pension provider Varma revealed that its investments generated returns of 10.2 per cent, corresponding with a €6bn increase in its assets to €64.4bn.

As a result of these returns, Varma's solvency ratio was 134.6 per cent, up from 130.4 per cent in 2023, and solvency capital was €16.8bn.

Of Varma's investments, listed shares yielded 16.5 per cent, up from 10.3 per cent in 2023, while equity investments yielded 12 per cent in returns, fixed income investments delivered a 4.7 per cent and hedge funds saw a 10.5 per cent return.

However, the return on real estate investments was -2.8 per cent.

"Pension assets grew significantly last year, and the year was one of the best in terms of investments in the past decade. The high returns were driven by broad diversification and strong stock market performance," Varma CEO, Risto Murto, stated.

However, Murto noted that whilst almost all asset classes developed favorably, geographical differences were "large".

"Market confidence in the United States held firm throughout the year, and optimism around artificial intelligence fueled the development of technology companies," Varma head of investments, Markus Aho, explained.

"The result of the US presidential election was ultimately clear, and this spared the investment markets from unrest at the end of the year."

"The economies of the United States and Europe are developing in different directions," Murto agreed.

"Finland needs a competitive and vibrant Europe, especially as the importance of tariffs and other barriers in world trade is growing again."

Fellow finnish pension provider, Elo, also saw funding improvements, as its net investment return rose from 6 per cent in 2023 to 8.5 per cent in 2024, delivering a €2.6bn boost in the group's assets under management.

Updates from the fund showed that the market value of investments had risen to €32.4bn in 2024, with an average return on investments over the ten years of 5.7 per cent. This corresponds to a real return of 3.6 per cent.

Similar trends were seen in terms of asset class performance, as while all asset classes delivered positive returns, the best returns were listed equity investments, at 14 per cent, and hedge fund investments, at 13.1 per cent.

However, real estate investments again delivered lower returns, as Elo noted that the challenging situation seen in the real estate investment market continued in 2024.

Despite this, the fund reassured savers that the risk level of Elo's real estate investments was kept moderate and the market situation was exploited by selectively making housing investments at a reasonable cost level.

With these measures, the portfolio's occupancy rates remained good in the difficult economic situation, and the total return on properties remained positive at 2.2 per cent.

This was despite impairments of a total of approximately €26m, which were made to the valuations of direct properties in 2024.

“We did well in terms of investment returns," Elo CEO, Carl Pettersson, said.

"Our solvency was strengthened by the increase in our solvency capital by €758m from the end of 2023. I am also pleased with our improved cost efficiency.

"Despite the significant growth in our new sales market share, our insurance premium income decreased."

Elo said that 2025 has also "started well", with positive developments on investment returns and a slightly better start to the year in terms of insurance sales.

However, Elo acknowledged that the economic outlook for early 2025 is "uncertain", noting that the US administration's tax and spending policies, trade policy including tariffs, defense policy, and geopolitical decisions will affect the global economic and market environment.

Elo also pointed out that while the end of the war between Ukraine and Russia would have a strong impact on the European economy, trade and geopolitical threats to the EU could accelerate EU reforms and promote self-sustaining economic growth.

The group also suggested that the recently agreed pension reforms could help improve pension financing, as it will allow pension companies to increase the equity weight of investments, which will improve the expected return on investments in the long term and reduce the pressure to increase contributions.

This was echoed by Varma, as Murto stated: "We are pleased that the labor market organizations have negotiated an agreement that supports the long-term sustainability of the earnings-related pension system.

"The agreement also corresponds well with the pension companies' assessments of how the system can be strengthened in practice."

Elo said that it is currently assessing the effects of the pension reform and planning the necessary measures.

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