The Finnish labor market organizations have reached a preliminary agreement on a pension reform, which, if approved by the government, could have far-reaching implications for real estate investments. This agreement not only addresses the sustainability of the pension system but also introduces changes in investment strategies, particularly in real estate and equity markets.
The proposed reform focuses on maintaining stability in pension contributions for at least five years while making minor adjustments to pension increases based on inflation and wage growth. The financial sustainability of the system will primarily be addressed through a shift in investment strategies. The reform allows pension companies to increase their allocation to equities. According to the Finnish Centre for Pensions, the reform could increase the share of stocks in investment portfolios by more than 10 percentage points, while the weight of other investment assets would decrease. As a result of the changes, the expected real return on private sector pension funds could improve by approximately 0.3 percentage points compared to the current regulations.
Another crucial aspect of the reform involves changes to real estate investment regulations. The reform allows pension companies’ subsidiaries to use borrowed capital for real estate investments within the European Economic Area (EEA), up to 10% of the total pension fund investments and 50% of all real estate investments. This provision is expected to channel more capital into the real estate sector, supporting the acquisition, development of properties.
For example, Varma’s portfolio consists of 55% equity investments and 9% real estate investments. Similarly, Ilmarinen’s portfolio includes 48% equity investments and 9% real estate investments.