The Finnish employment pension institutions have in recent years increasingly invested pension contribution funds abroad. This has been regarded as being reasonable on the basis that a wider spread and diversification of investment is desirable. There is a statutory employment pension scheme in operation in Finland and for this reason it is vital that the funds collected as pension contributions will be invested both productively and securely.

The executive boards of the various employment pension institutions in Finland annually determine the basic considerations and principles for their investment activities during the year. In particular, the employee representatives, who are members of such executive boards, have demanded the inclusion of ethical principles in the pension fund investment plans.

The employees would like to anchor the investment ethics primarily to the United Nations Declaration on Human Rights and on the ILO Convention on the Fundamental Rights in the Working World which include the freedom of association and the right to organise, the freedom to negotiate and the elimination of discrimination, forced labour and child labour. In addition to these, environmental issues are also regarded as being of importance.

The SAK survey of employment pension institutions

Earlier this year, SAK sent an enquiry to nine private sector employment pension institutions, ie to all six employment pension companies and to three sector specific pension institutions. The recipients were asked whether or not they had included ethical principles in their investment plans. This enquiry covered about 2/3rds of the private sector employment pension funds.

The results of the enquiry were as follows: Six pension institutions had, during the last few years, defined their ethical principles and included these in their investment plan; one pension institution stated that they had committed themselves to ethical values as early as in the late 1980's and did not enlarge upon that; and in two employment pension institutions, discussion on the ethics of investments was about to be started.

SAK will continue the survey

In addition to these nine institutions, private sector employment pension schemes are operated in Finland by numerous pension funds and foundations. All of these, but in particular the municipal sector pension institutions, are significant investors. SAK will send all these institutions an enquiry about their ethical principles of investment during the current year.

The Finnish statutory earnings-related pensions scheme is quite different than the pension systems in the other countries.

We can find six interesting points of the Finnish statutory pension schemes.

First: The staturory pension scheme is all-inclusive. That means all workers and wage-earners and nowadays even short-tearm-employees are included in the pension system. Also the entrepreneurs have the statutory pension schemes of their own. The wage-earners of the public sector have the pension laws of themselves.

Second: The general retirement age is 65 years for men and women. The level of pensions depends on earnings and a pension of 60 % of wage level is accrued in 40 years. Pension accrues only from the period of work and payment of salary. However the pension accrues from days during the employee has received earnings-related unemployment benefits or certain rehabilitation allowances.

Third: There is no pension ceiling in the Finnish statutory earnings-related pension system which includes to the so called first pillar of the social security. It means that also the well-paid people are covered by the same scheme as the workers. That's why the second pillar supplementary pensions agreements are not very common in Finland. There has not been any great need for the third pillar private pension insurance.

Fourth: The financing of the statutory earnings-related pensions is partly funded. That means 20 % of the pension money has been saved to the funds and 80 % of pensions are financed by pay-as-you-go system. Thus the financing system is the combination of a funding system and a pay-as-you-go system—it has been worked in different economic situations and also inspired confidence in the long-term financing of pension protection. The pension expenditure is average for other EU countries and rather below than above the average level. The contributions are paid by employers and wage-earners. This year the total average pension contribution in the private sector is 21,5 % from which the part of the employee is 4,7 % of the wage.

Fifth: As already said the pension scheme also in the private sector is statutory and compulsory by the law. The pension insurance earnings-related system is handled within the same scheme by pension insurance companies, industry-wide pension funds and company pension funds, which all compete among themselves. The employer can decide where of these institutions to take out the pension insurance for the employees. The competition is hoped to make the system more efficient.