State Pension Fund’s 2017 return 6.6%; five-year annual real return 5.7%

The market value return on the investments by The State Pension Fund of Finland (VER) reached 6.6 per cent in 2017 (6.7 per cent in 2016). The real rate of return was 6.0 per cent (5.6 per cent).

VER primarily seeks a long-term rate of return sufficient to contribute to the financing of the state pension system. VER’s average nominal rate of return over the past five years is 6.4 per cent and real return 5.7 per cent. The average nominal ten-year return is 5.0 per cent and real return 3.5 per cent.

At the end of 2017, the market value of VER’s investments amounted to EUR 19.6 billion (EUR 18.8 billion in 2016). Of all the investments, fixed income instruments accounted for 40.3 per cent and equities 47.5 per cent while the rest consisted of other investments and the impact of derivatives. For the first time in VER’s history, equities accounted for a clearly greater percentage of investments than fixed-income instruments.

All the asset classes yielded a positive return in 2017. Of the large asset classes, listed equities generated a return of 11.0 per cent and liquid fixed-income instruments 2.0 per cent. While the highest return was earned on non-listed equities (23.6%), private equity funds (16.1%) and investments in infrastructure funds (14.8%) also gave healthy returns.

In 2017, the State Pension Fund received approx. EUR 1.4 billion in pension contribution income and it transferred some EUR 1.8 to the government budget. Every year, VER contributes an amount equivalent to 40 per cent of the state’s total pension expenditure to the government’s annual budget. The amounts to be transferred are increasing continuously with the growing pension expenditure.

“The level of returns in 2017 was good and reinforces the financing base of the state pension system. Long-term returns, which VER mainly focuses on, were also good, if not excellent, considering the post-2008 period,” says CEO Timo Viherkenttä.

“The operating environment developed favourably in 2017, particularly the equity market. An additional factor that contributed to VER’s exceptionally high risk-adjusted return on investments was low market volatility.”

“VER’s role in equalising the state’s pension expenditure is growing from year to year. In 2017, VER paid already over EUR 400 million more to the government budget than it earned in pension contribution income,” says Viherkenttä.

At the end of 2017, the state’s pension liability under the state pension system was EUR 92.6 billion. The funding ratio rose to approx. 21 per cent.

The Annual Report of The State Pension Fund of Finland is available here.

Inquiries:

Timo Viherkenttä, CEO of The State Pension Fund of Finland, tel. +358 (0)9 2515 7010.

Established in 1990, The State Pension Fund of Finland (VER) is an off-budget fund through which the state prepares to finance future pensions and equalise pension expenditure. VER is an investment organisation responsible for investing the state’s pension assets professionally. At the end of 2017, the market value of the Fund’s investment portfolio stood at EUR 19.6 billion.