More stock investment proposed for pension funds
Working group wants higher yields and lower premiums
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A working group on pensions, composed of representatives of the key labour market organisations, is proposing an increase of ten percentage points in the next five years in the proportion of corporate shares in work pension funds.
Such a move would increase market risks, but would also improve expectations for yield. In the long term, stock market investments are calculated to be about two percentage points higher than the less risky interest-yielding investments.
Members of the working group include Seppo Juntila, Secretary-General of the Finnish Confederation of Salaried Employees (STTK), Lasse Laatunen, head of legal affairs at the Confederation of Finnish Industry (EK), Markku Lemmetty of the Confederation of Unions for Academic Professionals (AKAVA), Pentti Parmanne of Central Organisation of Finnish Trade Unions (SAK), as well as two expert members, both CEOs of large pension insurance companies: Matti Vuoria of Sampo, and Kari Puro of Ilmarinen.
One of the aims of seeking a greater yield on invested capital is to keep pension insurance premiums from rising too much. Currently, the work pension premiums on the private side are about 22 percent of income. As a deferred wage of sorts, it is part of Finnish labour costs, and as such, has an impact on the cost of labour.
As a result, work pension premiums have an impact on corporate finances, international competitiveness, and employment.
Only part of the pensions that are paid out are based on return on investments. Most pension spending comes directly from pension insurance premiums that are paid in. For such a direct distribution system, the success of the Finnish economy, employment, and the total combined sum of earned income are decisive. If the combined amount of wages and salaries paid declines, it brings on pressure to raise premiums.
The Puro working group calculates that under present rules and yields on investment, pension premiums will rise by 6.5 percent by 2030.
Currently, pension funds aim at a yield of 3.5 percent in real terms - that is, above inflation. If the yield were one percentage point higher, the pension premiums could be kept at 25 percent. Puro advises caution: even a real yield of four percent would be a significant achievement.
The proposals are to be put forward to the Ministry of Social Affairs and Health and the Ministry of Finance. The government will discuss the matter, and Parliament would have to enact some legislative changes for the new rules to come into effect. Some of the changes could be implemented from the beginning of next year.
Helsingin Sanomat
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| 31.1.2006 - TODAY |
 More stock investment proposed for pension funds |
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