Prefunding of assets has gained increasing importance in recent years as a source of pension financing. This trend is driven by population ageing and the associated growth of earnings-related pension expenditure.

International comparisons of pension asset investments are relatively scarce in Finland. The comparative data published by international organisations, for their part, are often of a rather general nature and do not necessarily take into account the distinctive features of earnings-related pension systems.

Under its current strategy (2017-2021), the Finnish Centre for Pensions is committed to increase and improve the quality of comparative data available on pension asset investment, particularly from the viewpoint of the Finnish earnings-related pension system. Comparisons of investment returns are thus an integral part of our efforts at the Finnish Centre for Pensions to produce data on investment operations and to shed light on their key role in pension financing.

Earnings-related pension investors divided into two groups

Our comparison of investment returns includes 24 pension sector providers from Northern Europe, North America and Asia. They are all major pension investors in their respective pension systems, both in terms of coverage and investment assets. Two new operators have been added to the comparison since 2018: Japan’s and South Korea’s state pension funds.

The pension investors are divided into two groups based on their risk-taking capacity: those not subject to solvency regulation and those subject to solvency regulation. The former include the Swedish buffer funds (AP1-AP6), the Canada Pension Plan Investment Board (CPPIB), the Norwegian Government Pension Fund Global (SPU), the Japanese Government Pension Investment Fund (GPIF) and the National Pension Service of Korea (NPS). There are three operators from Finland in this group: Keva, the State Pension Fund (VER) and the Church Pension Fund (KER).

The second group includes the California Public Employees’ Retirement System (CalPERS), the Stichting Pensioenfonds (ABP) and the Pensioenfonds Zorg en Welzijn (PFZW) of the Netherlands, the Swedish occupational pension funds Alecta and AMF, the Danish occupational pension fund ATP, and the Finnish earnings-related pension insurance companies (Elo, Ilmarinen, Pensions-Alandia, Varma, Veritas) and the Seafarers’ Pension Fund (MEK).

The comparison published here examines investment returns over a one-year, five-year and ten-year period from 2009 to 2019. The figures can be freely selected from the database for 2008 and onwards. In addition, our comparison includes data on pension asset amounts and investment allocations for the last year. The comparison is updated annually.

An infographics application is available that allows for more detailed comparisons of investment returns. The data can be downloaded as Excel tables.

Earnings-related pension investors’ real returns

The data on return rates are collected from public sources, primarily financial statements and annual reports. For Canada and Japan, annual return rates are calculated based on quarterly statistics. The figures indicate net returns after expenses and are presented in the national currency. Long-term average returns are calculated as a geometric average of annual rates of return. Calculations of real return use the average value of OECD Stat’s Consumer Price Index (CPI) for the investment year. Nominal returns can also be extracted from the database.

Overall, based on the performance of both Finnish earnings-related pension providers and the major foreign pension providers included in the comparison, investment returns in 2019 were very strong.

The highest returns were recorded by the Swedish buffer fund AP4 (19.6%) and the Norwegian SPU (19.4%). The average rate of return for Finnish earnings-related pension providers in 2019 was around 11 per cent.

Swedish, Norwegian and Canadian buffer funds and Danish ATP show 10-year returns of more than 8 per cent

Pension investment has a long-term horizon and therefore it makes sense to monitor return rates over a longer period than one year. Indeed, our comparison also uses ten-year and five-year moving averages.

Although 2019 was an excellent investment year, most pension providers in the comparison saw their 10-year returns decline. This is because the return rate for the previous peak year in 2009 following the financial crisis drops out from the comparison.

Sweden’s largest buffer fund AP4, the Norwegian buffer fund SPU, the Canadian buffer fund CPPIB and the Danish occupational pension fund ATP recorded the highest real returns (average return rate 8.7%) during the ten-year comparison period.

Finnish earnings-related pension providers recorded average real annual returns of 5 per cent over the 10-year review period. In Finland, buffer funds achieved returns that were about half a percentage point higher than for pension providers subject to solvency regulation during the recent 10 years.

Earnings-related pension providers’ annual real returns

The above graph shows marked annual fluctuations in earnings-related pension investors’ real returns from 2008 onwards. The 2008 financial crisis and the subsequent quick recovery are clearly visible in the graph. This was followed by the euro crisis in 2011. Return rates are then relatively stable from 2011 through to 2018 when many pension providers see them fall into the red – before bouncing back to almost record levels in 2019.

Allocation of investments

Pension insurers’ investment assets are divided into three categories: equities, investments in fixed-income securities and other investment instruments. This is a rather crude classification, but nonetheless allows for better comparability than the increasingly multidimensional classifications adopted by many pension insurers themselves. 

In 2019, the weight of equities in investment allocations ranges from 100 per cent (AP6) to 20 per cent (ATP). Buffer funds have a higher-than-average equity weight (55%) than pension providers subject to solvency regulation (42%). The equity category also includes unlisted shares. 

The share of investments in fixed-income securities is highest for ATP (72%) and lowest for MEK (5%). For pension providers subject to solvency regulation, the average share of investments in fixed-income securities was 36 per cent, and for buffer funds 32 per cent. Investments in fixed-income securities include both government and corporate bonds and other fixed-income investments. 

Other significant investment types include investments in real estate, raw materials, infrastructure and hedge funds. 

Equity weight not in direct correlation to risk

It is useful to note that our examination of investment allocations does not take account of  differences in risks between different investment types. As a rule, equity investments are riskier than investments in interest-bearing papers. However, equity investments vary depending on the shares of listed and unlisted equities. Investments in fixed-income securities can also consist of high-risk corporate bonds or state bonds with poor credit ratings. Duration values describing the sensitivity of fixed-income securities to changes in interest rates are not available for all pension insurers, and therefore the related risks of investments in interest-bearing instruments are not reported. 

Earnings-related pension providers’ investment assets

The differences in pension providers’ asset levels are explained, among other things, by differences in the systems’ funding techniques and in the number of insured persons and pension recipients. In Finland, for example, the earnings-related pension system is partly funded and implementation is spread among several operators. In Sweden, the statutory pension system is also partly funded and the buffer fund is divided among several providers (AP1-AP6). Individual operators therefore are not very large in size. Occupational pensions are fully funded, but they have only a supplementary role to statutory earnings-related pensions. 

In the Netherlands, occupational pensions are also decentralised, but they are fully funded and in practice offer a full earnings-related pension. This is reflected in the country’s substantial volume of pension assets. Although there are many pension providers, the assets are concentrated in the major ones. The two biggest operators are ABP and PFZW. 

In Japan (GPIF), South Korea (NPS), Norway (SPU) and Canada (CPPIB), buffer funds are centrally responsible for the funding of the statutory pension system. The Japanese fund is the largest in the world, and it is also by far the largest pension provider in our comparison.

Pension assets are converted into euros using the exchange rate for the last day of the financial period. 

Earnings-related pension investors operate in different environments

Boundary conditions for comparison of investment returns

  • Starting year and length of comparison period affect the results
    • Substantial annual fluctuation in returns
    • Long-term average returns depend on selected period
  • Currency region and exchange rate fluctuations cause differences in results
    • Returns expressed in national currency (that is, the same currency in which the pensions are paid)
    • Real returns provide better comparability as effect of inflation is removed
  • Investment operations take place within the solvency framework and other regulations limiting investment risks

All of the above affect the final results of the comparison

Our comparison shows the history of realised returns and all contributing factors for the pension providers concerned. The aim of the comparison is to build a stronger foundation of knowledge about pension investment by taking a wider view and looking beyond Finland. However, the comparison does not allow direct conclusions to be drawn about the success of investments made. The final result will be affected, among other things, by the pension provider’s currency region and exchange rate and the investment regulations in place. It should be noted that the comparison also includes major players already established in the marketplace, and therefore among their ranks there are likely to be some highly successful pension investors.

In our comparison returns are reported in the national currency, since the pensions too are paid in the national currency. Changes in a national currency relative to the currency of another country affect the final result depending on the share of investments abroad. In the case of SPU (Norway), for example, which invests exclusively in foreign countries, fluctuations in the exchange rate of the Norwegian krone have a significant effect on investment returns.

Investment returns are furthermore affected by the areas in which the earnings-related pension investors operate. Investors will typically be inclined to focus on their domestic market. SPU forms an exception in this respect. In the euro area, including Finland, the performance of the stock market during the review period has been much weaker than in the United States. Interest rates have also been higher in the United States than in the euro area.

Regulations affecting investment decisions are also crucial in this context. We have divided pension investors into two categories according to whether or not they are subject to solvency regulation. In Finland, solvency regulations apply only to private sector earnings-related pension providers, that is, earnings-related pension insurance companies, company pension funds and industry-wide pension funds (for more details, see TELA). In other countries, occupational pension insurers follow similar national or pan-European (Solvency II) solvency regulations. The company pension funds and industry-wide pension funds included in this comparison adhere to their own national regulatory frameworks (see more detailed data below).

Solvency regulation, for its part, will affect the possibilities and willingness of pension insurers to take investment risks. The purpose of solvency regulation is to protect pension assets and benefits. Solvency is measured by the ratio of assets to liabilities. When solvency is sound, that is, when assets relative to liabilities are high, insurers can strive for higher returns through riskier investments. Correspondingly, when solvency is weaker, solvency regulation will steer investments from shares to interest-bearing papers and other less risky investment instruments.

Pension insurers not subject to solvency regulation, in our case the buffer funds that are not burdened by pension liabilities, also have their own rules and limitations regarding investment allocation. These vary both between countries and individual pension operators. For example, there may be restrictions on the share of equities or real estate investments in the portfolio.

The Netherlands has a pension system that is built around a national pension and supplementary occupational pensions. Entitlement to the national pension AOW is based on residence. Earnings-related pension system consists of collective supplementary occupational plans agreed between employers and employees. Supplementary pensions are fully funded and cover around 90 per cent of all employees. Supplementary pension cover is primarily a defined benefit system and is mostly provided through major sector-specific funds.


Founded in 1922, ABP (Stichting Pensioenfonds ABP) is a pension fund for public sector and education employees. It has some 1.1. million active insurees and 0.95 million pension recipients. ABP awards defined old-age, disability and family pension benefits.

ABP is the Netherlands’ biggest pension fund, accounting for around 30 per cent of total assets in the pension fund sector.


PFZW (Stichting Pensioenfonds Zorg en Welzijn) is the Dutch pension fund for the care and welfare sector. Established in 1969, it currently has some 1.2 million active insurees and 0.44 million pension recipients. PFZW awards defined old-age, disability and family pension benefits.

PFZW is the Netherlands’ second largest pension fund, accounting for around 15 per cent of total assets in the pension fund sector.

Investment regulation

Collective supplementary pension provision is primarily regulated by the Pensions Act (Pensioenwet). The Act stipulates that supplementary pensions are fully funded, but there are only relatively few direct quantitative rules or restrictions relating to investment. Regulation is largely guided by the Prudent Person Principle, which is based on qualitative criteria. Another significant part of investment regulation is the risk-based financial assessment framework (financieel toetsingskader FTK), the aim of which is to ensure the full funding of pension liabilities by guaranteeing the necessary amount of assets with the risks encountered or taken by the fund.

FTK regulations require that pension funds’ assets and liabilities are assessed on a market basis. Liabilities are valued using the euro swap curve and the ultimate forward rate (UFR). The euro swap curve is used for maturities of less than 20 years. In the case of maturities of over 20 years, weighted averages of UFR and market rates are used, applying a higher UFR weight for longer maturities. The UFR used is the 120-month moving average of the 20-year forward rate.

Pension funds are expected to guarantee with 97.5 per cent probability that they have sufficient assets to meet their non-indexed liabilities for one year. The riskier the fund’s investments, the more assets they should have relative to liabilities. For most pension funds the solvency requirement is in the region of 120–130 per cent. If the solvency ratio is under 110 per cent, pension funds may not index-link their benefits. Funds are required to cut pensions if their solvency ratio remains below 105 per cent for five consecutive years.

In recent years funding ratios have fallen short of the indexation threshold, mainly as a result of interest rates falling to extremely low levels. Coupled with rising life expectancy, interest rate trends have driven up the amount of liabilities relative to assets.

The South Korean statutory pension system is partly funded. The National Pension Fund was created in 1988 in connection with the launch of the national pension service.

Surplus from contribution revenue is set aside in pension funds for purposes of future pension expenditure. The latest calculations indicate that pension assets will dry up by 2060 unless reforms are put in place to strengthen the financing of the pension system.

The National Pension Fund is the third largest in the world. At year-end 2018 the value of its investments amounted to 34 per cent of GDP. In recent years the fund has stepped up its investments in equities and in foreign countries.


Japan’s statutory pension system is partly funded. Pensions are financed from pension insurance contributions, state funds and returns generated by the pension fund.

The Government Pension Investment Fund is the world’s largest pension fund. At the end of 2018 the value of its investments amounted to around 27 per cent of GDP. The fund has been in operation in its current form since 2006.

GPIF realigned its investment strategy in October 2014 when it decided to reallocate its investments from domestic bonds to equities and to increase the share of foreign investments. The fund set itself the target of increasing the share of domestic and foreign equity investments from one-quarter to one-half of its portfolio. Its equity investments are divided half and half between domestic (+/- 9%) and foreign (+/- 8%) companies, as before. The weight of domestic bonds was reduced from 60 to 35 per cent  (+/- 10%), and the share of foreign interest-bearing papers was increased from around 11 to 15 per cent (+/-4%).

Statutory pension security in Canada consists of the federal earnings-related Canada Pension Plan (CPP) and the national pension system known as Old Age Security (OAS). The CPP programme is financed from pension contributions and by means of funding, the OAS programme is financed from tax revenues.

Labour market pension plans and individual supplementary pensions contribute significantly to overall pension security because benefits under the statutory systems are relatively modest and limited.


CPP pension assets are invested by the Canada Pension Plan Investment Board (CPPIB). CPPIB was founded in 1997 with a mandate to secure the long-term sustainability of the earnings-related pension system. Excess revenue from pension contributions is paid into the fund. CPPIB has leaned heavily towards equity investment from the earliest years of its operation.

At the end of March 2018 CPPIB had net assets worth around 224 billion euros (CAD 356 billion). It is the world’s eighth largest pension fund in terms of investment assets, which amount to around 20 per cent of GDP.

Investment regulation

CPPIB investment activities are governed by the Canada Pension Plan Investment Board Act, which says that the CPPIB’s mandate is to

  • manage assets in the best interests of contributors and beneficiaries
  • maximise long-term returns without excessive risk-taking and with due consideration to factors that have a bearing on the financing of the CPP system and the payment of benefits
  • assist the CPP system in the financing of benefits

CPPIB investment policy complies with the prudent person principle, but to fulfil its statutory roles and functions the Board sets out more detailed instructions and guidelines in its Investment Statement.

The CPPIB’s Investment Statement says that the risk exposures of the actual Investment Portfolio shall be in line with the risk target as expressed in the Reference Portfolio, which also reflects the minimum expected return rate of investment activities. The allocation of the Reference Portfolio is as follows:

  • 85 per cent private equities (Global public large/mid cap equity, including Canada and emerging markets)
  • 15 per cent fixed-income securities (Canadian Federal and Provincial Governments Nominal Bonds)

The Reference Portfolio is expected to yield a minimum return of 3.9 per cent. The target return rate for the Investment Portfolio is higher due to active portfolio management and more efficient portfolio allocation.

The Investment Portfolio should be largely invested outside of Canada, although interesting-bearing papers should be predominantly Canadian. Hedging is not generally used to manage exposure to exchange rate risks emanating from the emphasis on foreign investment. The aim of this is to spread the investment risks in relation to the Canadian dollar and thereby in relation to oil and other commodity prices.

The Norwegian pension system is built on the foundation of a National Insurance Scheme (Folketrygden), which pays out residence-based basic pensions and occupational pensions. Occupational pensions (tjenestepensjonsordninger) became mandatory in 2006 and now cover virtually the whole labour force. AFP supplementary pensions provide additional pension cover for around one-half of private sector and almost all public sector employees.

Government Pension Fund Global

Contributing to finance the National Insurance Scheme, the Government Pension Fund Global (Statens pensjonsfond utland – SPU) accounts for the bulk of Norway’s substantial pension assets. The first payments into the fund were made in 1996 by what was then called the Petroleum Fund of Norway. Fund assets currently (2016) amount to approx. 240 per cent of GDP.

In contrast to ordinary pension funds, SPU assets are routinely used to cover the government budget. Instead of pension contributions, fund revenue consists of cash flows from the petroleum industry. Taxes paid by oil industry companies, state revenue from oil sales and profits from the majority-state owned Statoil are deposited into the fund and used to offset government budget deficits.

In the long term transfers from the fund to the government budget may not exceed three per cent of the current fund value. It is thought that this figure reflects the fund’s estimated medium term real return and therefore will be enough to cover future budget deficits if oil revenue dries up, without the need to dip into the fund’s capital.

The financing of pensions under the National Insurance Scheme is based on a general social insurance contribution, which is also used to finance other social benefits under the scheme. The contributions levied cover around two-thirds of total social insurance expenditure, while the remaining one-third is financed through the government budget, in practice through assets from the pension fund.

Investment regulation

SPU is exempt from solvency funding requirements and has no explicit pension liabilities, yet strict investment rules still apply. Investment activities are regulated by the Ministry of Finance, which establishes SPU’s investment mandate. The main provision under this mandate is that assets shall be invested outside of Norway. In practice, the mandate prohibits investments in Norwegian equities, real estate and bonds. SPU investments are furthermore required to adhere to the ESG principles of responsible investment.

SPU may invest in foreign-listed equities and interest-bearing instruments and in unlisted equities if the board of the company concerned is committed to publicly listing the company. Since 2010 investments in real estate have also been permitted. Derivatives may only be included in the portfolio when they are expressly linked to other investments. The investment mandate also prohibits investment in countries subject to significant economic sanctions. The fund may also not invest in unlisted infrastructure.

According to the SPU investment mandate the equity portfolio shall constitute 60–80 per cent of total investments. Investments in fixed-income securities shall constitute 20–40 per cent and unlisted real estate investments no more than 7 per cent of the investment portfolio. In order to limit credit risks, investments in fixed-income securities with a higher risk rating than BBB may not exceed 1 per cent of the investment portfolio. A minimum of 7.5 per cent of the investment portfolio shall be held in treasury bonds issued by the governments of France, Germany, Japan, the UK and the United States. Furthermore, SPU may not own more than 10 per cent of the voting shares of an individual listed company

The SPU investment portfolio shall be structured in such a way that the expected annualised standard deviation of the return relative to the expected tracking error does not exceed 1.25 per cent. The strategic benchmark index is derived from the FTSE and Bloomberg Barclays indices, with investments in equities and in fixed-income instruments having a weight of 62.5 per cent and 37.5 per cent, respectively. However, the Ministry of Finance has decided to progressively increase the weight of equity investments in the benchmark index to 70 per cent

In Sweden, the statutory old-age pension system is divided into two parts: the income pension (inkomstpension), which is financed on a PAYG basis, and the premium pension (premiepension), which is fully funded and based on . Buffer funds contribute to financing the income pension.

Statutory pensions are supplemented with occupational pensions, which cover around 90 per cent of all employees. Occupational pensions are administered by private companies, foundations, industry-wide pension funds or arranged through book reserves. Three-quarters of total revenue from occupational pension contributions is managed by life insurance companies.

AP buffer funds in the Swedish statutory pension system

Funding of the income pension is shared across five state-owned funds. Old-age pension contributions are paid into the first four of these funds. The sixth AP fund is as a closed fund, with no cash flow movement between the fund and the pension system. It is by far the smallest of the five buffer funds.

Overall pension assets are equivalent to around 30 per cent of GDP. Contribution revenue that exceeds pension expenditure has been paid into the buffer funds since the launch of the earnings-related pension system in 1960.

There furthermore exists a state-owned Seventh AP fund (Sjunde AP-fonden), which is charged with administering the default fund of the third-pillar premium pensions system, which is beyond the scope of this comparison.

Life insurance companies Alecta and AMF

Alecta and AMF are Sweden’s largest occupational pension companies. Alecta administers occupational pensions for private sector employees (ITP), while AMF manages the occupational pension plans negotiated by LO, the Swedish Trade Union Confederation, which covers the blue-collar labour market (SAF-LO). Under both schemes the wage earner can choose not only who they want to manage their pension pot but also their preferred risk level by opting for either traditional pension insurance or a fund pension scheme. Traditional pension insurance guarantees a minimum rate of return, a fund pension scheme does not. In the ITP system, half of the pension contribution must in any case be invested in traditional pension insurance. If the insuree makes no active choice, pension cover is provided through these companies in the form of traditional pension insurance.

SAF-LO pensions have been defined contribution schemes since 1996, ITP (ITP1) pensions have been based on defined contributions since 1997. Alecta administers defined benefit pension security (ITP2) during the transitional period unless the employer provides pension insurance through a foundation or a book reserve system.

Investment regulation

Investment activities by the buffer funds are regulated by law, and the first four AP funds are subject to uniform investment rules. The sixth AP fund is a venture capital investor and is subject to investment rules laid down in a separate law.

The current Act regulating the operation of AP funds came into effect in 2001 in connection with the old-age pension reform. The AP Funds Act specifies quantitative restrictions on investments. Under an amendment that entered into force in 2019, quantitative investment restrictions are eased, among other things, by lowering the requirement of the minimum share of bonds with a low credit and liquidity risk from 30 to 20 per cent and by allowing greater freedom with regard to unlisted equities.

The AP funds are legally sovereign with their own investment and ownership policies and risk management plans. They are obliged by law to submit annual financial reports to the Swedish government. Based on these reports the government, for its part, submits to Parliament an annual summary and appraisal of how the funds have been managed. The funds have set themselves real investment return targets of 4–4.5 per cent.

Alecta and AMF follow the prudence principle in all their investments. Sweden’s financial supervisory authority Finansinspektionen bases its solvency assessments on a national model which is broadly in line with Solvency II principles, although there are some differences in technical detail. For instance, the solvency limit in the national, so-called traffic light model is set at a level whereby the solvency capital requirements are met over a one-year horizon with 97 per cent probability. In Solvency II, the probability of liabilities exceeding assets over one year is stricter at 0.5 per cent (value-at-risk 99.5%). The national regulations enforced during the transitional period were established as permanent practice since January 2020 (see government bill).

The Finnish earnings-related pension system is a partly funded defined benefit scheme.

Statutory earnings-related pension system in Finland is administered by several earning-related pension providers. Statutory earnings-related pensions are managed in the private sector by pension insurance companies, special pension providers, company pension funds and industry-wide pension funds and by public sector pension providers.

Our comparison includes pension insurance companies and the Seafarers’ Pension Fund (MEK) from the private sector; and Keva, the State Pension Fund (VER) and the Church Pension Fund (KER) from the public sector.

The general guiding principle for pension providers’ investment operations is to seek profitable and secure investment opportunities. In contrast to the private sector, the public sector pension system is not subject to any specific pension liabilities. Instead it is a buffer fund that is exempt from solvency requirements.

The private sector earnings-related pension system has been partly funded since it was created in 1962. In the public municipal sector, the funding of pension assets was started in 1988 and in the state sector in 1990.

Pension insurance companies and MEK

Pension insurance companies manage earnings-related pension provision for private sector employees and self-employed persons. Statutory earnings-related pensions for seafarers are managed by the Seafarers’ Pension Fund.

A total of some 1.8 million persons are insured with a pension insurance company, accounting for around 70 per cent of all those insured for an earnings-related pension in Finland. In 2017 MEK had over 7,300 seafarers and 8,300 pension recipients on their books.

Part of the future pensions under the private sector pension acts for employees (Employees Pensions Act and Seafarers’ Pensions Act) are pre-funded, the rest are financed through pension contributions according to the PAYG principle.

Buffer funds Keva, VER and KER

Keva is Finland’s largest investor of earnings-related pension assets. It is responsible for funding the pensions of local government employees and for investing their pension assets. Its investment aim is to ensure a predictable and stable level of pension payments for the long-term future.

Under the Act on the State Pension Fund, VER is required to transfer 40 per cent of annual state pension expenditure to the state budget. The assets not transferred remain in the pension fund. In 2013 VER asset transfers to the state exceeded the amount of pension contribution revenue for the first time. VER’s long-term funding ratio target is 25 per cent.

The Church Pension Fund KER manages the pension buffer fund for employees of the Evangelical-Lutheran Church of Finland. It is tasked to ensure the payment of church employees’ pensions and the steady development of pension contributions in parishes. Since 2016 pension payments out of the fund have exceeded incoming pension contributions, and therefore part of the pensions are financed from the fund’s investment returns.


The Finnish earnings-related pension system is not subject to the EU Life Insurance Directive or to the Solvency Directive that is applicable to life insurance companies.

Private sector pension providers in Finland are, however, subject to solvency regulation, and they seek to manage their investment and insurance risks through solvency capital, with similar limits applied as are set out in the Solvency Directive.

The riskier the pension provider’s investment allocation, the higher the solvency capital requirement. The solvency limit is set at a level whereby the solvency capital requirements are expected to be met over a one-year horizon with 97 per cent probability.

The solvency rules governing investment activities do not apply to public sector buffer funds. Although there is no corresponding regulation, buffer funds and private sector pension providers are required to ensure that their investments are secure, deliver a high return, are readily convertible into cash and that they are appropriately diversified and spread. The State Pension Fund is subject to more detailed regulation than others because not only does it have to follow the provisions of law, but the Ministry of Finance additionally issues direct instructions concerning its investment operations. Current instructions are that

  • fixed-income instruments account for a minimum of 35 per cent
  • equity investments for no more than 55 per cent and
  • other investments for no more than 12 per cent of the State Pension Fund’s investment portfolio.
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In Denmark, statutory labour market pensions supplementing the state pension and covering employees (Arbejdsmarkedets Tillægspension, ATP) is administered by ATP, a private pension provider. This is a fully funded defined contribution scheme. ATP is Denmark’s largest pension fund. Its pension assets amount to around 40 per cent of GDP.

Although it holds significant assets, ATP’s pensions have relatively minor importance in terms of overall pension cover. The old-age pension is not earnings-related. The pension contribution is flat-rate and determined according to working hours. The contribution is the equivalent of around one per cent of average earnings. The average monthly old-age pension is around 200 euros. No disability pensions are payable under the system. Survivors’ pensions are in the form of flat-rate lump sum payments.


ATP’s investment operations are governed under a separate act (ATP-loven). The ATP pension scheme is not subject to Solvency II regulation, but its own risk management model is based on the own risk and solvency assessment (ORSA) principles of the Solvency II Directive. ATP regularly reports on its solvency and operations to the Danish Financial Supervisory Authority Finanstilsynet.

ATP’s own solvency requirements are set at the same level as in Solvency II, with the company expecting to remain solvent at 99.5 per cent probability over one year. However ATP’s own minimum capital requirement level is higher than under Solvency II

In the United States, pension provision is based on a statutory federal-wide system called OASDI (Old Age, Survivors, and Disability Program). There is no residence-based national pension system, but pensioners’ minimum income is guaranteed by an income and asset-tested income supplement programme. The OASDI system is financed by revenue from insurance contributions.

Pension arrangements agreed between the employer and employee and individual supplementary pension plans are relatively important to the individual’s total pension income, particularly in the case of middle and high earners, because benefit levels are relatively low under the statutory system. Supplementary pension schemes are fully funded pension security, and in the public sector they cover virtually all employees. In the private sector coverage is much more limited.


Established in 1932, the California Public Employees’ Retirement System (CalPERS) is one of the largest pension funds in the United States, with assets worth around 272 billion euros (2017). In administrative terms CalPERS is a state agency. It has some 3,000 public sector employer members and around 1.9 million individual members, who are civil servants and employees in the public sector,

Investment regulation

CalPERS’s investment operations are primarily regulated by the Board-approved Fund Investment Policy. In line with this policy, the strategic objective of the CalPERS investment programme is to generate returns at an appropriate level of risks so that members and beneficiaries can be provided with benefits as required by law.

The investment policy details four specific return performance objectives:

  • the long-term rate of investment return shall meet or exceed the CalPERS actuarial expected rate of return;
  • returns shall be maximized for the level of risk taken;
  • returns shall exceed the Policy Index; and
  • assets shall be invested efficiently, bearing in mind the costs of investment operations.

The policy benchmark consists of the following indices. Their weights correspond to the allocation target for the investment portfolio:

  • Listed equity: Custom Global Equity Index, 50%
  • Private equity: Custom FTSE All World, All Cap Equity + 150bps, Quarter Lag, 8%
  • Interest: Custom Global Fixed Income Benchmark, 28%
  • Real estate assets: MSCI Investment Property Databank (IPD) (U.S. Core – Fund Level), 13 %
  • Inflation assets: Custom Inflation Assets Benchmark, 0 %
  • Liquidity: 30-day Treasury Bill, 1%

The expected annual deviation from the benchmark (standard deviation) may be no more than 1.5 percentage points.

State and local government pension systems shall comply with Governmental Accounting Standards Board (GASB) accounting rules, for instance in calculating the current value of pension liabilities. Under new rules introduced in 2014, pension assets shall be assessed on a market basis and pension liabilities discounted to the present value with respect to the expected return on assets, and in case of uncovered liabilities  with respect to local government high-quality bonds.

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