Annual Report 2014


Varma prepares for pension reform

The 2017 pension reform will better adjust our pension system to the longer life expectancy. The Confederation of Finnish Industries EK, the Central Organisation of Finnish Trade Unions SAK and the Finnish Confederation of Salaried Employees STTK reached an agreement on the contents of the reform on 26 September 2014. According to the impact assessments, the labour organisations’ amendments meet the objectives set by the Finnish Government for pension reform. Tripartite preparation of legislation is ongoing on the basis of the pension reform agreement. Pension acts will be passed by the next parliament.

The pension reform will bring about changes to pension benefits and pension financing. According to the pension reform agreement, the lower and higher age limits for old-age pension will gradually rise as of 2017. As of 2025, the age limits for old-age pension will be linked to the increase in life expectancy, and the impact of the life expectancy coefficient will be more lenient. The accrual of earnings-related pension will be changed such that pension accrues at a rate of 1.5 per cent of annual income, irrespective of age.

The pension reform will introduce, alongside disability pension, a years-of-service pension at the age of 63. This pension can be applied for after 38 years of employment, provided that the work has been physically or mentally demanding and workability has diminished. Part-time pension will be replaced by partial early old-age pension, the age limit for which is 61 years until the year 2025 and 62 years thereafter. 

The pension agreement also set the level of the contribution under the Employees Pensions Act TyEL at 24.4 per cent for 2017–2019. According to the Finnish Centre for Pensions’ forecasts, the contribution level is sufficient for the long term. The labour market organisations will reassess the matter no later than during the negotiations on the pension contribution for the year 2020.

Another change concerning the financing of pensions involves raising the equity-linked provision for current and future bonuses from 10 to 20 per cent. Furthermore, the equity investments of a single pension insurance provider will be limited to a maximum of 60 per cent of the entire portfolio. These changes will increase earnings-related pension insurance institutions’ possibilities to invest in equities and will support the sufficiency of the agreed contribution level in the long term.

The pension reform will have an impact on all of Varma’s client companies and insured customers. Implementing the pension reform will, on one hand, increase the workload, but it will also give Varma a chance to deepen its client relationships. The goal of extending careers will not necessarily be met while the economy is suffering. However, the pension reform aims to achieve changes in the long term. Varma aims to handle its task – securing pensions and implementing the changes that the pension reform entails – as effectively as possible. 

A legislative amendment that took effect at the beginning of 2014 will terminate the supplementary pension insurance (TEL-L) pursuant to the Employees Pensions Act on 31 December 2016. During 2014, policyholders and the insured were informed about the termination of the insurance and the impact this will have on the benefits of the insured. The number of these policies at Varma amount to about 330, covering around 4,400 people. Employers have until the end of 2016 to arrange a benefit corresponding to the supplementary pension cover.

In 2014, the average TyEL contribution was 23.6 (22.8) per cent of the total payroll. Employees below the age of 53 contributed 5.55 (5.15) per cent of their pay, while the rate for employees aged 53 and over was 7.05 (6.50) per cent. The YEL contribution was 23.3 (22.50) per cent of the confirmed earnings for those below the age of 53, and 24.8 (23.85) per cent for those aged 53 and over.   

The return requirement on technical provisions consisted of a 3.0 (3.0) per cent fund rate, a pension liability supplementary factor and the return on equity component. The value of the supplementary factor was 1.44 per cent on average in 2014. The return on equity component in 2014 was 9.62 per cent. The technical rate of interest, which is used to determine the interest rate of the oldest premium loans, insurance contributions and a number of other items, was 4.50 until the end of June and 5.00 thereafter.