​Finnish pension funds outshine international peers on real returns

Finnish pension funds beat their international peers last year in terms of inflation-adjusted returns, a new analysis shows, with that success attributed to relatively low domestic inflation as well as high allocations to foreign equities.

A new international comparison compiled by the Finnish Centre for Pensions (Eläketurvakeskus, ETK) shows that the Finnish earnings-related pension insurance companies Elo, Ilmarinen, Varma, Veritas, and the Seafarers’ Pension Fund (MEK), produced higher real returns in 2024 than six large non-Finnish pension funds, which are also subject to solvency regulations.

In the comparison, the five Finnish pension funds had returns of between 6.6% and 9.4% in real terms, which was higher than the other six pension funds in the category – AMF, Industriens Pension, ABP, Alecta, PFZW and ATP.

The latter six pension investors produced 2024 real returns of 6.1%, 4.3%, 4.3%, 4.1%, 3.5% and 0.1%, respectively, according to the report.

Mika Vidlund, liaison manager at ETK, said: “Despite the recent trade wars that have shaken global stock markets, many pension investors have actually had an exceptionally good investment year,” adding that last year’s return had been well above long-term figures.

He said that although inflation had fallen in many countries, it had impacted the performance comparison in different ways. For example, he said, inflation had been much higher in the Netherlands during the year than in Finland.

“As a result, Dutch investors lagged significantly behind Finnish investors in terms of real returns, even though nominal returns are very similar,” Vidlund noted.

ETK, which is the central body of Finland’s statutory earnings-related pension system, said Finnish pension investors had taken all the top spots in the category of regulated pension investors.

A key reason for the strong performance appeared to be their increased allocation to foreign equities, it said, with the institutions having reduced their share of domestic stocks last year.

“Investing abroad paid off last year as the Helsinki Stock Exchange underperformed other markets,” said Antti Mielonen, special adviser at ETK.

Investment opportunities for Finnish private sector pension funds could improve, becoming more yield and risk-orientated in the next few years as a result of updated investment rules, ETK added, citing the pensions reform agreed in January, which allows private sector pension investors to allocate up to 85% of portfolios to equities — up from 65% currently.

Among unregulated pension investors, categorised as buffer funds, Norway’s Government Pension Fund Global (GPFG) had achieved the highest real return of 20% in 2024, ETK said.

Denmark’s ATP stands out in the ETK comparison for low real returns, not just for 2024, but also over a five and 10-year horizon, with both multi-year real return figures being negative.

The analysis includes asset allocation comparisons between the institutions, showing ATP – which provides a largely-guaranteed pension – to have the highest allocation to fixed income.

IPE has asked ATP for comment on the ETK report.

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