A strong pension system brings security during economic turmoil
Earnings-related pensions and the assets that are funded for them are well secured in the Finnish defined benefit pension scheme. In a challenging market situation, Varma’s priority has been to foster strong solvency and to actively and carefully diversify investments.
The positive development in the U.S. cast light on the 2013 economic year. The situation in Europe is also more balanced, and cautious expectations of strengthened recovery emerged towards the end of the year. The central banks’ continued monetary policy interventions boosted the stock markets, especially in developed economies.
In the U.S., growth picked up towards the end of the year, bolstered by the increase in consumer spending, which was supported by the strengthening housing market and a decline in unemployment. Employment rates improved more than expected by the markets.
However, recovery has been slow in the U.S. too. Expectations of reasonable economic growth and the strengthening of the labour market promoted speculation that monetary policy would be tightened. Inflation continued at a higher rate than targeted by the U.S. central bank.
Europe seeks balance
Recovery in Europe is not yet on a quite solid base, although growth expectations increased somewhat towards year-end. The problem countries have managed to balance their public finances, yet the strong euro has weakened the competitiveness of several countries.
Industrial production figures were expected to take an upswing late in the year. Simultaneous savings measures and the slow rise in wages, however, dampened the increase in consumer demand. Inflation has slowed down in the eurozone, and the impact of monetary policy measures on the real economy has been modest. The European Central Bank has announced that it is ready also for negative interest rates if need arises.
The Finnish economy calls for structural reforms
The Finnish economy contracted in 2013. Industrial production volumes and export volumes shrank strongly, and the added value of our exports has diminished. Employment is still at a reasonable level considering the economic situation.
Balancing public finances calls for structural reform. At the end of 2013, the Finnish government decided on structural measures to help close the sustainability gap. The earnings-related pension system plays a major role in closing the gap, since earnings-related pension assets are considered a part of the national economic accounts and pension legislation is reflected in the supply of workforce.
Varma emphasises strong solvency
The capital markets showed strong development in 2013, especially in developed economies. Share prices climbed strongly in Finland too, reflecting investors’ confidence in the future profitability of Finnish companies.
The financial crisis hit pension systems and institutional investors worldwide. In the prevailing difficult-to-predict market situation, Varma’s priority has been to foster strong solvency and to actively and carefully diversify of investments. Our strong solvency position gives a major strategic competitive edge in the challenging market situation.
Financing of the earnings-related pension system is on a solid foundation
The private sector earnings-related pension system is on a solid financial footing, and it offers employees and self-employed persons a reliable source of income after retirement. At the start of 2013, international experts released their findings on the state and development needs of Finland’s earnings-related pension system. Among the particular strengths are the cover provided by the system, the consensual, tripartite approach to decision-making, and a commitment to securing stable and long-term sufficiency of funding.
The social partners upheld the agreed pension contribution increases, which will raise the average pension contribution to 24.4 per cent in 2016. The social partners are committed to negotiating in 2014 the pension system reform, which would take effect at the start of 2017. Tentatively, the reforms will target an extension of careers by 1.5 years and will have a major contribution to managing the sustainability gap in public finances.
Varma strives to reinforce the pension system and secure pensions through highly successful investment operations, by improving cost-effectiveness, and by offering effective earnings-related pension insurance services that support employees and companies in extending careers.
Recovery in sight
The global economy is gaining momentum. The financial markets are experiencing an unprecedented wave of tightening regulation; the EU is building a banking union in order to have better means of abating future financial crises. Stricter regulation will restrict lending and raise borrowing costs, which could hinder economic recovery.
The outlook for Finland’s economy is phlegmatic, despite the positive effect the upswing in global demand is expected to have on our economy in 2015.
In the short-term, the goal of extending careers and companies’ financial requirements do not necessarily coincide. Varma’s client companies will experience difficult transformations also in 2014. The ability to understand customers’ needs is highlighted especially during major economic shifts. Varma’s goal is to offer its customers effective pension insurance services that have a tangible economic impact.