Growth in pension assets secures future pensions: assets worth EUR 258 billion

The nominal yield on earnings-related pension assets in Q1 2024 was 3.4 per cent. The real yield, adjusted to remove the effects of inflation on total return, was 2.6 per cent.

“Global stock markets rose strongly in the first quarter, thanks to the solid performance of the American economy and an AI-boosted tech sector. The appreciation of assets in the first months of 2024 was largely down to stock investments,” says Kimmo Koivurinne, an analyst at TELA, the Finnish Pension Alliance.

“Anticipated interest-rate cuts also supported the stock markets, even if the cuts will probably be slower than markets expected at the start of the year,” Koivurinne says.

The value of pension assets reached the highest recorded level. A growth in the amount of assets is always good news, particularly from the perspective of pensions payable in the future, as more funds will be needed as the population ages.

“Today’s young people and children will be contributing to the pensions of those currently in work. Because of funds, some of those future pensions can be financed by returns on investments, instead of significantly raising pension contributions from their current level,” Koivurinne says.

The share of pension funds and their yields used to cover pension expenses annually has grown over the years, and continues to do so. In private sectors, funds are used to cover just over a fifth of pension expenses. That share will rise in the near future to a quarter. In other words, 25c of every €1 paid as pensions will come from funds. That gives funds an important role in securing the financing of pensions.

“However, when speaking about funds and their returns, it’s worth remembering that the returns, be they positive or negative, do not influence the size of pensions paid to pensioners. The returns are only of significance for the pension contribution paid by employers and employees,” Koivurinne says.

Focus on long-term yields

Even though the short-term growth in pension assets benefits pensions payable in future, it is worth remembering the long-term nature of pension investment.

“The returns over a year or a quarter primarily depend on market developments and, to some extent, on the investment decisions made within asset classes. The yield over the longer term, on the other hand, is a result of the chosen risk profile. Generally, greater risk generates a better return over the long term,” Koivurinne says.

It is precisely the long-term returns which matter in the appreciation of earnings-related pension assets, as the liabilities for future payable pensions stretch decades into the future. The average real yield on assets since 1997 has been 3.9 per cent annually.

Long-term analysis is highly significant in the pension reform currently being deliberated by the labour market organizations. One element involves considering overhauling investment to enable better yields through increased risk. Increasing the level of risk requires investors to be able to withstand low yields, potentially for long periods.

Details on pension asset amounts

The amount of earnings-related pension assets at the end of March was EUR 258 billion. Assets appreciated by EUR 7 billion in the first quarter of the year.

The yields per investment class were:

• equity and equity-type investments, real yield 4.5 per cent
• fixed-income investments, real yield 0.1 per cent
• property investments, real yield -1.0 per cent
• alternative investments, real yield 2.7 per cent.

There were few if any changes to the breakdown in assets by class or geographical region during the quarter.

The figures for earning-related pension assets compiled by TELA pertain to the pension assets managed by pension providers, pension funds, pension foundations, the Pension Fund for the Employees of KELA, KEVA, the Church Pension Fund, the Farmers’ Social Insurance Institution, the Seafarers’ Pension Fund, the Bank of Finland’s Pension Fund, and the State Pension Fund of Finland. Only statutory pension coverage is included in the statistics.

The pension assets for which TELA compiles statistics do not contain other receivables and debts or tangible assets recognized in the balance sheet. The earnings-related pension assets listed here refer to investable assets.

For full, detailed information about the amount and allocation of investment assets, see the TELA website Amount of pension assets. You can also browse data on the TELA statistical database.
TELA will next publish statistics on pension assets, for Q2 2024, in August–September.