Giant pensions merger hits Finnish pensions diversity, says association chief

While there is a clear argument in favour of the merger between Ilmarinen and Etera now underway in Finland’s pensions insurance sector, the link up will reduce choices for companies setting up occupational pension schemes, says Timo Toropainen, chief executive of the Pension Fund Association.

The merger between Ilmarinen, Finland’s second largest pensions insurance company, and its smaller rival Etera, which is due to complete on 1 January, will have a negative effect on the country’s private pension provision by reducing diversity, according to one industry group.

“The resulting market concentration will deal a serious blow to the cause of increasing diversification for investors,” says Timo Toropainen, chief executive the Finnish Pension Funds Association (Eläkesäätiöyhdistys).

The association represents the private pension funds in Finland that are used by companies to provide mandatory occupational pensions instead of the big pensions-insurance companies.

The merger between Ilmarinen and Etera, which was announced at the end of June, will create the largest pensions insurer in Finland, Ilmarinen has said.

It was officially approved earlier this month by the Finnish regulator FIN-FSA.

As things stand, Varma is the biggest such company with total assets under management of EUR 45.0 billion at the end of June compared to Ilmarinen’s EUR 38.5 billion.

“The plan to merge is certainly justified for these two earnings-related pension companies, but one also has to consider the other effects of the merger,” Toropainen says.

He says the upcoming merger diverts the Finnish financial sector away from the initiatives in the national capital market strategy outlined by Sampo Group chairman Kari Stadigh five years ago.

“Market concentration does a lot of harm to the goal of a more diversified investor field,” Toropainen says.

“People should remember that economy of scale is not unequivocally a magic word in the occupational pensions sector.

“Large — or in this case huge — size does not necessarily guarantee better investment returns or savings in relative cost of pensions,” he says.

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