FINLAND - Regulatory pressures, which are forcing European pension funds to reduce their equity allocation and increase exposure to bonds, are having the opposite effect on Finnish pension insurance companies, which are looking to increase their equitys' exposure by 10-15% over the medium term.
Finnish pension insurance companies such as Varma and Ilmarinen have said the EU Pensions Directive, which encourages a move to asset liability management, will not affect them as they form part of the first pillar. Pension funds and insurance companies in the second pillar have had to reassess their asset allocation as a result of the EU directive.
Jaakko Tuomikoski, deputy chief executive at the e20bn Ilmarinen Mutual Pensions Insurance Company, said: “We do not come under the jurisdiction of the EU Pensions Directive as we manage statutory pension insurance.
“Working on the assumption that equities will outperform bonds in the long run, we have decided to increase our allocation to equities by 10% to 40% in the medium term. Demographic factors mean that contributions will rise, but we are hoping to reduce this through enhanced returns.”
Tuomikoski said that increased allocation to equities would mean allocation to bonds and cash would be reduced.
At the end of 2004, Ilmarinen had an allocation of 50% in bonds, 12% property, 3% cash, 5% in direct loans and around 30% in equities. In equities, the company invests around 40% in Finnish equities and 60% in global equities, roughly split into 33% US equities, 33% Eurozone and 33% others.
Other Finnish Insurance Companies including Tapiola Mutual Pension Insurance Company, Pension-Fennia Mutual Insurance Company, Veritas Pensionforsakring and Pensions Alandia are all expected to increase equities by roughly 10-15% over the next 3-5 years.
The EU directive and Solvency II requirements mean that pension funds and life insurance companies have to match assets with long-term liabilities putting pressure on the long end of the yield curve.
The Pensions Regulator (TPR) has set out plans to use "new regulatory initiatives" with over 1,000 schemes as it aims to tighten its regulatory grip and boost member outcomes.
HM Revenue and Customs (HMRC) has announced it is delaying the provision of data that will enable pension schemes to confirm the guaranteed minimum pension (GMP) benefits to pay to members until the end of the year.
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