Prediction of return on shares

In the private sector, the technical provisions of pension providers include an item of its own: an equity-linked buffer (OLV), which enables pension providers jointly to bear part of the risk arising from fluctuations in returns on equities. On the basis of the realised returns on equities, this component of the technical provisions is either increased or decreased by the so-called equity coefficient, which is determined by the Finnish Centre for Pensions. The equity coefficient takes into account the weighting coefficients and point figures, which we update on this page once every quarter.

Weighting coefficients and the values of sub-indicies

Weighting coefficients of the OLV index and the point figures of sub-indices at the end of each quarter of this year have been compiled in the appended table.

The regional weights have changed with the new calculation introduced in October 2023. For more detail on the new calculation, see the Weighted Index and Regional Weights page. The table below shows this year’s regional weights, as calculated using the new formula. Next update from 30th September week 48

Date	31.3.2024		30.6.2024		30.9.2024		31.12.2024
Updated	29.5.2024		29.8.2024		week 48		week 9/25
	weight	index value	weight	index value	weight	index value	weight	index value
Finland	29.85	25815.81	30.48	26653.68
Europe *	20.46	13386.87	19.61	13643,59
USA *	44.29	10561,49	44.70	11122.98
Japan *	5.40	28.75	5.21	27.79
Total	100.0		100.0

* All three index values have been obtained by dividing them with the currency exchange rates calculated by the ECB. Currency exchange rate values

Source of the index values: Bloomberg, MSCI, Nasdaq OMX Nordic

Principles of prediction

Changes in the equity-linked buffer (OLV) are calculated retrospectively for each quarter. The calculation is made for the whole pension liability in the same quarter, on the basis of the actual average rate of return on quoted shares included in investments made by private-sector pension providers for the same quarter (known as the average return). The shares included in the calculation are limited to shares listed on OECD and EEA stock exchanges.

When the average return is calculated, the weight given to an individual pension provider’s share investments is at most 15 per cent.

After each quarter, the Finnish Centre for Pensions collects data from authorized pension providers to calculate the final liability. In addition to the rate of return, the data collected include information on tied up capital.

Real-time determination of liability requires prediction

For the real-time determination of pension providers’ liability, the above rate of return on shares must be estimated for the current quarter and the quarter just ended, on which the collection and processing of the final data have not yet been completed.

According to the position taken by TELA’s Advisory Committee for Calculation Criteria Affairs, estimation is made using a weighted share index whose relative change (as a percentage) is determined with sufficient accuracy to predict the rate of return used in the final calculation of the equity-linked buffer. The joint Investment Reporting Group has decided to recommend a weighted index covering four regions.

The data needed to weight the indices are gathered in connection with the collection of quarterly information on the investment distribution and returns on earnings-related pension providers. Thus, the weighting coefficients of share indices are also updated four times a year. The Investment Reporting Group also monitors how well the index predicts the actual return for each quarter.

Data from previous years

Weighting coefficients of the OLV index and the values of sub-indices at the end of each quarter starting from the end of 2006.

The calculation formula, with which an individual pension fund’s weight was considered when calculating regional distribution, has varied over the years.

• Between June 2019 and October 2023, the maximum weight of individual pension funds was 15 per cent.
• Between the start of 2015 and June 2019, the maximum weight was 20 per cent.
• Before 2015, the maximum weight was 15 per cent.

For details on the new calculation, see the Weighted Index and Regional Weights page.