The State Pension Fund of Finland (Valtion Eläkerahasto, VER) has released 2022 financial results showing a -6.8% investment loss, with its leader warning that the effects of last year’s legal amendment are posing new investment challenges.
VER, the Helsinki-based pension fund backing Finland’s state employees’ scheme, this morning reported that the investment loss meant a fall in the market value of its assets to €21.6bn at the end of 2022 from €23.6bn.
In its portfolio, which mainly comprises 47.6% equities and 40.7% fixed-income assets, liquid fixed income lost -8.2%, and listed equities diminished by -12.4%.
But infrastructure funds and private equity funds generated strong gains of 15.6% and 12.5%, respectively, during the year, VER reported.
Timo Löyttyniemi, VER’s chief executive officer, said: “The investment market was challenging in 2022. Geopolitics, volatility in energy markets and rising inflation created many new uncertainties in investment markets.”
Increased interest rates had led to negative returns on risk-free government bonds while returns on equity investments turned negative, he said.
“Usually, the returns on these two asset classes have offered mutual protection,” he said, but added that, even so, VER’s long-term returns had remained at a sound level.
Löyttyniemi said challenges lay ahead as a result of amendments to the Act on the State Pension Fund in the spring of 2022, after the pension fund had reached its 25% funding ratio target at the end of 2021.
“VER’s net contributions to the government budget will increase in the future as a result of the legal amendment and rising pension expenditure,” he said.
“These factors will limit the fund’s growth in the coming years and create new investment challenges,” he said.
In 2022, VER said it received approximately €1.6bn in pension contribution income and transferred some €2.0bn to the government budget.
This year, the pension fund is required to contribute an amount equivalent to 40% of the state’s annual pension expenditure to the government budget, it said, adding that the amounts to be transferred would continue to increase after that, because of growing pension expenditure.
According to the 2022 amendment to VER’s act, budget transfers will rise from the current 40% to 45% between 2024 and 2028. If the funding ratio exceeds 25% for two consecutive calendar years, an additional transfer of three percentage points will be made to the government budget, according to the new legislation.
At the end of 2022, VER’s funding ratio was 22.4%, given that liabilities under the state pension system amounted to €97.0bn, according to the report published today.
VER said in the report that following the legal reform, its board of directors had initiated a strategy development process, with the strategy now having been updated concurrently with the 2023 investment plan and adopted in January 2023.
IPE has asked VER for details about the updated strategy.
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