State Pension Fund earns 4.4 per cent return on investments

Published 2016-10-27 at 10:13

The return on the investments made by the State Pension Fund (VER) reached 4.4 per cent during 1 January–30 September 2016. The return during the third quarter was 3.5 per cent.

Of the large assets classes, liquid fixed income instruments generated a return of 4.9 per cent and listed equities 4.1 per cent during the three quarters.

VER’s average rate of return is 7.7 per cent for the past five years and 4.6 per cent for the past 10 years, while the equivalent real return was 6.7 per cent (5 years) and 2.9 per cent (10 years).

At the end of September, the market value of the Fund’s assets amounted to EUR 18.5 billion (EUR 17.9 billion on 31 December 2015). Fixed income instruments accounted for 48.1 per cent, equities for 42.0 per cent and other investments for 7.8 per cent of VER’s all investments.

“VER’s return on investment, generated more or less equally by all asset classes, was sound during the first three quarters. What in particular exceeded expectations was the five percent return on fixed income instruments as interest rates kept falling and risk premiums decreasing. The investments in the emerging markets, in particular, generated healthy returns both on equities and fixed income portfolios,” says Managing Director Timo Viherkenttä.

“The third quarter was characterised by a strong recovery of the equity markets as the uncertainty created by the Brexit vote was quickly replaced by new optimism. After the strong July, movements both in the equity and fixed income markets remained relatively modest despite the uncertainties affecting the investment climate. Developments in the currency markets have been dominated by the fall of British sterling.

“Investors are currently focusing on issues related to political developments both in the United States and Europe – along with ever-present central bank speculations,” Viherkenttä concludes.

During January-September VER’s premium income amounted to EUR 1,145 million while a total of EUR 1,338 million was transferred to the government budget. Under the law, VER is required to contribute to the government’s annual budget an amount equivalent to 40 per cent of the state’s total pension expenditure. The amounts to be transferred increase continuously with the growth in pension expenditure.

Relatively speaking, the state’s pension liabilities have been pre-funded to a lesser extent than in the private and municipal sector. At the end of 2015, the state’s pension liabilities amounted to EUR 95.7 billion, while the funding ratio was 19 per cent. Under the law, the State Pension Fund will be grown until its assets cover 25 per cent of the state’s pension liabilities.

Further information:

Inquiries: CEO Timo Viherkenttä tel.: +358 9 2515 7010.

Established in 1990, the State Pension Fund (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 September 2016, the market value of the Fund’s investment portfolio stood at EUR 18.5 billion.

All the figures presented in this press release are preliminary and unaudited.