As it stands, any company wanting to start up a supplementary defined contribution (DC) pension scheme for its workers has to go through a life insurance or pension company, as they are the only ones in Finland that can provide this kind of product. However, the government is preparing a reform that could significantly increase competition between pension funds and pension companies in the DC field and change the status quo.

The new legislation, which is expected to come into place in January 2009, would enable companies and even industry-wide pensions to have DC schemes and set them up themselves. These would be in addition to their existing defined benefit (DB) schemes. Such an option has been pending for a long time, but now it looks like it will finally happen as the government has said they will push forward with the legislation. Remarkably, Finland is one of the few EU countries without any real form of DC pension. Some are available via insurance companies, but apart from that, it is impossible to join one in the country.

Matti Leppälä, director at the Finnish Pension Alliance, Tela, believes the reform would be a positive step and supports the move to create DC schemes.

He says: “I think it would be very important for these companies. If they do not have this opportunity, they will take their business to life insurance companies that have close relations to pension fund insurance companies.

“Customers are looking for simple, total solutions. They want the whole package, and I think strategically it would be better for them to have the opportunity to compete with the insurance companies.”

This sentiment is echoed by Eläkesäätiöyhdistys (the Finnish Association of Pension Foundations). According to both Ismo Heinström, a lawyer at the organisation, and Folke Bergström, the executive director, the reform will save Finnish companies a significant amount of money. Both are confident that the reforms will be put into law because, unlike before, there is a great amount of demand and interest.

Mr Heinström says: “We are in favour of the reform and it’s a very good one.

Many employers are interested in this type of scheme, because if you compare it to the current system it is much cheaper for them.

“In recent years, pension companies have had a large share of the returns on investments. They have had a monopoly on the business, until this moment.”

Mr Bergström added that the reform would create more competition, and this can only be a good thing for everybody. However, his main concern was the level of interest from employees, which could make or break DC in Finland.

He says: “The real question is whether or not the people will want it. The employers certainly do, but we’re not sure how popular DC will be. We’ll have to wait and see.”

Naturally, this new competition will come at the expense of pension and insurance firms like Fennia and Ilmarinen. According to Eläkesäätiöyhdistys, these types of companies are doing everything they can to block the reform, or at least create some kind of loophole that will not take away too much of their market share.

These firms have not had much to say on the matter. When contacted, many of them stated that they were not prepared to comment, nor were any of them able to say they were against the reforms. Perhaps this means that these companies have accepted their fate and are busy preparing to operate within a more competitive market.

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