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Finland’s decentralised pension system is becoming endangered by the continuing trend among pension funds to transfer liabilities to insurers, according to the managing director of the Association of Pension Foundations.
Jouko Bergius’ comments came in response to the news that the country’s biggest insurer, Varma, will add E1bn to its assets by the end of 2009 as a result of new deals.
Mr Bergius said: “Pension funds remain economically profitable institutions. A decrease in number endangers the nature of the Finnish pension system. Concentration increases risks in the whole system and decreases its efficiency.”
The financial crisis has increased the desire among many Finnish companies to transfer pension liabilities to pension companies in order to remove potentially large costs from balance sheets.
Among these companies is VR Group, which runs the Finnish rail network. The company is looking to transfer E500m, just under half of its statutory pension fund, to Varma, making it one of the insurer’s biggest clients.
The remaining E570m and 11,500 members will continue to be managed by VR Pension Fund managing director Hannu Hokka. The deal should be completed by the end of 2009, but Mr Hokka emphasised this was still subject to the approval of the Financial Supervisory Authority. He also added that the transfer was a strategic decision taken by the company and had nothing to do with the competitiveness of the VR Pension Fund.
Varma’s chief investment officer (CIO), Risto Murto, said six deals could be concluded by the new year. A seventh scheme is in discussions with rivals Ilmarinen.
He added that demand for Varma’s services had been driven by strong investment returns – the company’s latest interim statement reported a 10.8 per cent return on its investment portfolio in the first nine months of 2009. However, it has yet to fully recoup the 15.2 per cent loss it suffered during 2008.
The impact of the deal on the position of Pasi Strömberg, VR Pension Fund’s CIO, remains unclear, but it is understood the fund’s staff will either remain with the fund or transfer to Varma.
VR Group CEO and president Mikael Aro has just been elected to the board of Varma, following a proposal from the insurer’s nomination committee. A spokesman for Varma dismissed suggestions of a possible conflict of interest as the board of directors “does not regularly deal with issues relating to operational relations with customers”.
