Equity returns boost pension asset growth in Q3: assets worth EUR 267 bn

The nominal yield on earnings-related pension assets for the year up to 30 September was 7.4 per cent. The real yield, adjusted to remove the effects of inflation on total return, was 6.8 per cent.

“International stock markets developed favourably in the third quarter. In particular, American stock markets performed strongly, led by tech companies. Decreased inflation and central banks’ rate cuts, in turn, boosted yields on fixed-income investments,” says Mikko Mäkinen, Chief Economist at Tela.

“In addition to them, alternative investments performed well. By contrast, property investments made a slight loss,” Mäkinen says.

Assets more significant in pension financing

The total value of earnings-related pension assets has grown since the end of 2022. Even though earnings-related pensions are chiefly funded by the earnings-related pension contributions collected annually, the significance of pension assets and the yields on their investments is growing constantly. This is because of declining birth rates and an ageing population, in particular.

“At present, around one fifth of private-sector earnings-related pensions is funded by assets and their yields. 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,” Mäkinen says.

The pension providers expect the future pension reform to bring changes to regulations on earnings-related pension asset investments, which would allow them to pursue slightly better returns on investments. However, the reform is not expected to generate quick wins.

“Funding earnings-related pensions using investment yields is a long-term job. We won’t be able to assess the results of the investment reform for several years or even decades,” Mäkinen says.

In practice, the investment reform would mean increasing the level of investment risk. This also requires investors to be able to withstand low yields, potentially for long periods.

“When investing in earnings-related pensions, long-term yields are significant, as the liabilities for paying future pensions extend several decades from now,” Mäkinen says.

The average real yield on assets since 1997 has been 3.9 per cent annually.

Details on pension asset amounts

The amount of earnings-related pension assets at the end of September 2024 was EUR 267 billion. The assets grew by EUR 6 billion during the third quarter.

The yields per investment class were:

• equity and equity-type investments, real yield 10.1 per cent
• fixed-income investments, real yield 3.8 per cent
• property investments, real yield -0.9 per cent
• alternative investments, real yield 5.1 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.

Full, detailed information about the level and allocation of investment assets is available on the Tela website under Amount of pension assets – The Finnish Pension Alliance TELA You can also browse data on the Tela statistical database. https://www.tela.fi/en/investment-of-pension-assets/statistical-database/#investment-asset-data

TELA will next publish statistics on pension assets, for Q4 2024, in February–March 2025.

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