FINLAND - Finnish pension funds will be allowed to increase their equity holdings from the current limit of 25% to 35% over the next five years under a new buffer fund designed to equalise the investment risk resulting from fluctuations in share value.
In September 2004, the Finnish central labour market organisations requested the Permanent Negotiating Group of the Finnish social partners to clarify how the risk tolerance of earnings related pension insurance companies could be increased, with the objective of allowing for higher returns.
The group includes representatives from various pension institutions and plays a significant role in shaping pension reform in Finland.
In a report published this week, the group recommended an increase in equities allocation to a new cap of 35%. The aim of the buffer fund, which will see market risk in equity investment borne by Finland’s pension system as a whole, is to allow pension insurance companies to increase their investment in riskier assets, such as listed equity, without eroding their solvency capital.
The growth in equity investment is expected to increase the level of return and dampen the pressure to raise insurance payments by 1-2% in the long term.
The central labour market organisations also asked the group to explore how pension insurance providers could increase investment in domestic targets.
The group concluded that: “The favourable development of production and employment in Finland is of primary importance from the earnings related pension perspective. Well-functioning capital markets are an important factor in promoting this target.”
To this end, the group said the best way to promote investment in Finnish assets was to improve opportunities for earnings related pension insurance providers to increase investment in shares.
“Co-operation with the government will aim at identifying methods to raise the amount of Finnish capital investment. The new recommendations for developing the investment environment and operational conditions for pension insurance companies and pension funds presented in the report will require government action.”
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