“The second Covid-19 year was surprisingly good for the Finnish earnings-related pension system. For Varma, 2021 was unprecedented, with record-high investment returns. The total payroll, which forms the basis for pension contributions, also increased significantly, and the number of disability pension applications declined,” says Varma’s President and CEO Risto Murto.
“The Covid-19 pandemic has not sparked such a broad economic downturn as the financial crisis did more than 10 years ago. On the contrary, last year was marked by a classic upswing, despite the pandemic. In the U.S., there is discussion concerning whether the economy overheated,” says Murto.
In 2021, the return on Varma’s investments was 18.5 (2.8) per cent or EUR 9.3 (1.4) billion, the highest annual return ever in Varma’s history. The value of investments grew to EUR 59.0 (50.2) billion at the end of the second year of the coronavirus. The 10-year nominal return on Varma’s investments is 7.1 per cent.
“Last year was exceptionally favourable for investors. The strategic allocation of our investment portfolio worked particularly well. The asset classes that showed weak performance in 2020 were our strengths last year. It goes to show that investment calls for resilience and perseverance,” says Varma’s CIO, Reima Rytsölä.
The best returns were generated by equities, 32.2 (5.9) per cent, of which private equity investments generated 49.6 (7.8) per cent, unlisted equities 26.3 (8.6) per cent, and listed equities 26.4 (5.2) per cent. Hedge fund investments also generated very good returns, at 15.3 (-1.0) per cent. Real estate investments generated a return of 5.9 (2.0) per cent, and fixed income investments 1.9 (1.9) per cent.
“The investment market outlook boils down to how well the markets will be able to cope with the future tightening of monetary policies. The Fed is feeling a growing urgency to raise the benchmark rate, and the fear is that a delay will result in an excessive hike. This scenario puts pressure on equities’ high valuation levels,” Rytsölä says.
Varma’s solvency capital reached a new record high of EUR 16.9 (11.5) billion and was 2.0 times (1.7) the solvency limit at the end of the year. Varma’s operational efficiency was also at an excellent level. In 2021, administrative costs totalled EUR 84 (78) million, which is 62 (61) per cent of the expense loading included in the insurance contributions. The smaller the percentage is, the more efficient the earnings-related pension company is.
Climate actions substantially drive down carbon footprint of investments
By the end of 2021, Varma achieved the carbon footprint targets established in 2016 for equity investments and listed corporate bonds. In five years, the carbon footprint of equity investments has declined 30 per cent from the 2016 level, and at year-end, the weighted carbon footprint of Varma’s equity portfolio was smaller than that of the global equity market. In listed corporate bond investments, carbon intensity was down 23 per cent from the 2016 level. The CO2 footprint of real estate investments was down 57 per cent compared to 2015. We have focussed on low-emission investments, and in real properties, the share of emission-free electricity and heat has been increased by using geothermal heat, among other measures. Varma aims for a carbon-neutral investment portfolio by 2035.
Payroll increased and disability pension applications were down
The financial situation of Varma’s client companies and entrepreneurs improved in 2021 from the previous year, and this was mirrored in the increased TyEL payroll and fewer payment reminders. The total TyEL payroll of Varma’s client companies increased 6.6 per cent from 2020. The TyEL payroll forms the basis for pensions to be paid.
The number of people on disability pension has declined by nearly 30 per cent compared to 2016. The main reason for disability in the disability pensions that were granted in 2021 was mental health disorders. Of these, depression and anxiety disorders were the most common.
“The number of disability pension application further declined last year, which is good news. The prolonged Covid-19 situation put a burden on work ability but did not lead to disability cases on a broad scale, at least for now,” says Murto.
In 2021, Varma processed 21 disability pension applications in which coronavirus infection (Covid-19) was cited as a main reason for disability. Of these, two people were granted disability pension until further notice, eight were granted the cash rehabilitation benefit and one was granted the partial cash rehabilitation benefit.
Varma refunds a record amount, EUR 222 million, in the form of client bonuses
Varma will refund EUR 222 (54) million to its customers, i.e. the highest amount of client bonuses in the company’s history. The change compared to the previous year is primarily due to the temporary reduction in insurance contributions that was implemented in 2020, due to which the amount of client bonuses was limited through legislation to one third in the comparison year. Varma’s solvency capital increased in 2021, which raised the amount of client bonuses by EUR 55 million.
Varma gained a total of EUR 45.9 (105) million in new premiums written during the year. This includes the net impact of new sales and premiums written transferred from other pension institutions. Premium income stood at EUR 5.6 (4.9) billion.
Varma has continued to provide uninterrupted earnings-related pension cover during the pandemic. Varma paid out pensions in the amount of EUR 6.2 (6.0) billion to 346,000 (347,000) people. At the end of 2021, 571,000 (543,000) individuals were insured by Varma.
Varma Mutual Pension Insurance Company is a responsible and solvent investor of pension funds. The company is responsible for the statutory earnings-related pension cover of some 917,000 people in the private sector. Premiums written totalled EUR 5.6 billion in 2021 and pension payments stood at EUR 6.2 billion. Varma’s investment portfolio amounted to EUR 59.0 billion at the end of 2021.
Katri Viippola, Senior Vice-President, HR and Communications +358 400 129 500 or katri.viippola(at)varma.fi
Suvi Vesterinen, Communications Manager, tel. +358 40 555 8029 or suvi.p.vesterinen(at)varma.fi