Significant change continues in the earnings-related pension scheme. At the beginning of last year, a pension reform entered into force with the aim of encouraging Finns to remain longer in working life. This would place upward pressure on pension expenditure. The impact of the reform is already visible, since there has been a decrease in retirement rates.
An investment review completed in January 2006 was also intended to contain the rise in pension expenditure. Its objective is to facilitate risk taking by pension companies and thus improve their investment income. The review also contained recommendations on updating the coverage and solvency requirements, as well as on making investments within Finland. The most significant reform proposal for Tapiola Pension is a significant increase in the amount of loading profit to be refunded to the customer.
Guidelines published in February 2006 by Rapporteur Louekoski to renew the governance of employment pension companies were moderate and are likely to promote good corporate governance by pension companies.
In the future, the supervisory board and board of directors of a pension company will be selected by an election committee, which underscores cooperation between policyholders, i.e., companies, and the insured, i.e., their personnel.
The competitive situation in the field of pension insurance will change and tighten in 2007 when the legislative Acts on employees' pension are combined.
Equity allocation clearly increased
Tapiola Pension enjoyed continued success in market shares and the new sales of pension insurance policies but suffered an exceptional loss in the transfer of pension insurance policies. Competition was very aggressive, particularly in the field of small and medium-sized enterprises.
In 2005, Tapiola Pension increased investments, particularly in equity markets that have yielded solid returns. The equity allocation in the investment portfolio was increased from about 16% to almost 25%. The timing of the change was successful, since the overall return on investment assets amounted to 9.2%. The aim of Tapiola Pension is to guarantee a stable, predictable and high-investment return. Tapiola Pension’s average annual investment return over the last five years has been the highest in the industry.
Investment return requirement is one of the future challenges
At the end of 2005, common pension calculation and payment systems with Etera Mutual Pension Insurance Company were taken into use. Cooperation with Etera in the IT field will resume at the end of 2006 in relation to the Employees’ Pension Act reform, even though the company will become Tapiola Pension’s competitor right from the beginning of 2007.
The implementation of the pension reform proceeded smoothly at the beginning of 2005 although the change caused some congestion in customer service at the beginning of the year. The company’s customer satisfaction has remained at a good level. This shows the competitive nature of Tapiola Pension’s services.
The working atmosphere among the personnel remained reasonably good despite very high work pressure. One of the biggest challenges for personnel is coping with the pressures of work. For the fourth consecutive year-end, there will be another systems change and it will require a lot of work. Additional challenges are posed by the intensifying competitive environment and the ever tightening return requirement for investment operations.
Olli-Pekka Laine
Managing Director
Tapiola Mutual Pension Insurance Company