A new report warns that the ongoing pension reform in Finland may address sustainability but increases associated risks without adequate preparations.
The Elinkeinoelämän tutkimuslaitos (Etla) recently released a report expressing concern over the ongoing pension reform presently under review by the Finnish Parliament. The reform aims to reduce the sustainability gap in the pension system and lessen the long-term pressure for increases in pension contributions. However, the report raises alarms about a significant downside: even as risks associated with investment reforms are anticipated to yield greater returns on pension funds, there is insufficient preparation for those risks becoming reality.
Researchers Jukka Lassila and Tarmo Valkonen highlighted that the reform will elevate the proportion of equities in the pension fund portfolio from the current 55% to over 70%. This shift could potentially bolster Finland's public finances by enhancing expected returns on pension assets. Nonetheless, the authors caution that this increase in equity investments inherently escalates the risks within the pension system itself, which could lead to greater financial instability if market conditions shift negatively.
While the pension reform operates under the premise of solidifying the financial foundation of the pension system, it introduces a paradoxical scenario where the intended benefits for public finances may come with unforeseen vulnerabilities. If the associated risks manifest, it could yield adverse effects on the pension funds and the financial security of retirees, troubling the system’s overall viability in the long run.
