Strengthening the Finnish pension system through investments is a “very long-term task”, according to the Finnish Pension Alliance.

Tela head of analysis functions, Jari Sokka, explained that part of the objective of the planned Finnish pension reforms can be achieved through investment returns but it is not something that can be done quickly.

“By increasing investment returns, the financing of occupational pensions can be improved in the long term. The results of the investment reform can be evaluated after several years or even decades at the earliest,” Sokka said.

Last month, the Finnish government gave the labour market organisations a mandate to negotiate a reform that would stabilise the public finances in the long term and include a rule-based stabilisation system. The goal given to the reform is to strengthen the public finances in the long term by about 0.4 percentage points in relation to the gross domestic product.

Currently, there is a funding shortfall in occupational pensions in the private sector, which is due to the increase in life expectancy and, especially, the decreased birth rate in the 2010s and 2020s.

“The reform aimed at improving the investment returns of occupational pension funds can solve part of the need for adjustment, the extent of which is a bit unclear for now,” Sokka said.

The occupational pension industry has considered ways to strengthen the financing of occupational pensions with the help of investment returns. In practice, improving returns is all about increasing the investment risk, i.e. investing even more in stocks.

However, to make this possible, Tela believes that changes will most likely have to be made to the yield requirement for liabilities recorded on pension insurers' balance sheets and possibly to the solvency regulation limiting risk-taking.

Sokka highlighted the issue of the automatic stabiliser, which requires attention. As the stabilisation system seeks to stabilise pension payments, it would mean that pensions could be cut if the earnings of the occupational pension system ran into difficulties.

He questioned: “Can occupational pensions simultaneously take more risk in investing and transfer the financial responsibility to current and future pensioners?”

“The predictability of retirement income is important in a system where the time horizon is as long as a person's life. For this reason, all the effects of a possible stabilisation mechanism must be carefully and openly clarified before making a decision,” Sokka emphasised.

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