Jari Sokka, director responsible for the analysis operations at The Finnish Penson Alliance (Tela), the pension insurance industry organisation, argues that the cost savings of pension mergers would not be worth the price.
In a viewpoint article on Tela’s website, he said: “If the occupational pension companies and possibly other occupational pension insurers were to be combined into one operator, the price could be the use of the occupational pension assets for completely different purposes than paying pensions.”
He argued that a merged entity would in effect have to become a state entity as “it is assumed that a possible single occupational pension operator could not be a private company”, and that there would be “the temptation of both the Ministry of Finance and politicians to use the funds funded for occupational pensions for other purposes would very likely become overwhelming”.
Sokka pointed to the recent example in April when, during the budget discussions, there were demands to freeze the pension index and argued that in practice, a merger would result in “pension funds being used to cover the government’s financial deficits”.
He said that while combining the pension providers would result in savings in the order of “several tens of millions of euros per year”, comparing it to the assets of €250bn and annual occupational payments of some €35bn, the savings would not be significant on the scale of the system as a whole, “at least not huge”.
Sokka wrote the article as a response to a reader’s opinion article in Maaseudun Tulevaisuus (The Future of Agriculture), a Finnish magazine.
The reader argued that a merger would lead to huge savings and could reduce pension contribution rates for employees. By centralising investment costs, cuts would potentially also boost returns, the reader said, further stating that the boards and supervisory boards of pension institutions were looking after their own backs, wanting to secure their position by scaremongering about the consequences of a merger.
Sokka, however, stated that when establishing the current occupational pension system, the guideline was to ensure that funds were strictly used for the cost of occupational pensions, with a decentralised system with multiple actors as the solution.
“Continuation of this principle is part of the social risk management of the occupational pension system and there is no reason to abandon it,” Sokka concluded.
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