Total assets held in Finland’s earnings-related pension schemes shrank by around 1.7% in the first three months of this year, as pension payments outweighed contributions and weak equity markets took their toll on investments.

Finnish pensions alliance TELA released figures showing assets at employee pension funds fell by €3.1bn in the first quarter of the year to end March at €177.8bn.

TELA said there were three reasons for this contraction – weak investment returns, particularly for quoted shares; the fact pension payments exceeded contributions collected in the system; and a change in the way data is now collected, which it says is in some respects more accurate than the old method.

Peter Halonen, analyst at TELA, said: “The investment environment in international financial markets has been a challenging one with uncertain market conditions, due to, for example, slowing economic growth in China and a fall in commodities prices.”

Investments performed poorly in the first quarter, particularly for quoted shares, he said.

Pension schemes de-risked by selling riskier investments between January and March.

Halonen said the amount of pensions paid out was increasing for the schemes, and therefore investment income was needed on a permanent basis to finance part of pension contributions.

He said this would have to increase over the next few decades.

Also, the change in the way statistics are reported resulted in data collection being more specific, which had the effect of slightly decreasing the level of assets reported, TELA said.

The survey showed that Finnish earnings-related pension providers were increasing the proportion of assets they invested in non-euro areas.

Assets invested outside the euro area increased to 51.3% at the end of March, from 50.1% at the end of December 2015.

Investment in Finland rose to 27.6% at the end of March from 27%, and investment in the rest of the euro-zone fell to 21.1% from 23%.

The share of investment in non-euro countries, as well as the domestic proportion of investment, has been increasing in the last few years, TELA’s analysis shows.

“Pension funds have been directing investment outside the euro area to spread risk more efficiently,” Halonen said.

Earlier this month, the Finnish Financial Supervisory Authority (FIN-FSA) reported that the solvency ratio of the country’s employee pension sector was at a solid level.

In a stress test, companies providing employee pensions were shown to be below the solvency limit, it said, but their technical reserves remained covered in the stress scenario.

Anneli Tuominen, FIN-FSA director general, said: “Risk levels have risen in the pension sector, as shown by the results of the stress test.”

These circumstances further highlighted the importance of solid risk management by the companies, she said.

The regulator said the solvency ratio in the employee pension sector fell to 26.3% at the end of March from 28.6% at the end of December but was still on a solid level.

The decline was due to weak investment returns and the relatively high return payable on pension liabilities, it said.

In the first quarter, it said, the sector had on average made an investment loss of 1%, with equities losing an average of 3.3% and fixed income investments generating 0.1%.

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