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Pension portfolios lose lion's share of 2019 gains

In Finland, the last time equally radical losses were seen was during the financial crisis in 2008, when real returns were -19 percent, states the Finnish Pensions Alliance Tela. This is echoed across the Swedish border.

Kimmo Koivurinne, Analyst at Tela. Photo: PR / VER

Occupational pension assets in Finland and Sweden experienced notable declines over the first quarter of this year, mainly due to the turbulence on the equity markets.

In Finland, a staggering EUR 22 billion disappeared from occupational pension assets over the first quarter. The total real return of the six largest mutual pension insurers in Finland was negative, at -9.6 percent for the first quarter, whilst sector assets totaled EUR 193 billion, the Finnish Pensions Alliance (Tela) has announced.

The developments in Sweden echo those in Finland. At AMF, total assets declined from EUR 12.6 billion (SEK 133 billion) to EUR 12.3 billion (SEK 130 billion), and total return for the quarter was -6.4 percent.

At Alecta, investments in Optimal Pension, the firm’s defined contribution pension savings plan, yielded a negative total return of -10.5 percent and the company’s defined benefit pension plan shrunk by 7.1 percent. Some 60 percent of Optimal Pension is invested in equities.

Negative bond yields

These developments by and large wiped out the gains made in 2019, says Tela’s analyst Kimmo Koivurinne in a statement. The asset value of the local mutual pension insurers declined - mainly due to drops in equity markets, but negative returns from bond investments also played a role by yielding negative returns.

“A total of EUR 22 billion vanished from the occupational pension insurers’ investment assets. This means that the sound returns from 2019 – EUR 21.6 billion – were nearly entirely wiped out,” Koivurinne says.

In Finland, the equity investments of the six largest mutual pension insurers pulled in a negative return of -15.5 percent over the first quarter, whilst the return from fixed income was -5.1 percent and alternative investments yielded -6.2 percent.

The only asset class which yielded a positive return was real estate, which generated a 1.1 percent return.

Exposure to domestic assets up

In Finland, there was a minor change in the geographical allocation of the six companies over the first three months of the year. Investments outside of the eurozone decreased by two percentage points, whilst investments in Finland increased by two percentage points. Investments in the eurozone stayed the same.

The last time that equally radical losses were seen was during the financial crisis in 2008. In 2008, the real return was -19 percent, Tela states.

The sustainability of the system is now dependent on how returns evolve over the next decade, Koivurinne says.

“The funding of occupational pensions in not facing a serious emergency. The solvency of private sector occupational pension insurers was at a strong level at the onset of the ovid-19 crisis and strong buffers have helped to cushion the blows,” Koivurinne says.

Alecta’s CEO Magnus Billing underscores that Alecta is “well-equipped” to fulfil its commitments despite the current financial turmoil. “The return on the portfolio has also improved sharply in April, thanks to the rebound in the stock markets,” he adds in a statement.

However, if the crisis continues it will pose a challenge to the funding of occupational pensions in Finland, Koivurinne notes. “Low returns, and especially the declining income from pension payments caused by layoffs and rising unemployment, may cause difficulties in the long-term financing of pensions,” he adds.

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