Keva is responsible for funding the earnings-related pension cover of municipal sector employees.
Part of the pension contributions is invested in a pension liability fund
Pensions are funded through contributions from municipal sector employers and employees, which are mostly used directly to pay out current pensions. The assets that are not used directly to pay out pensions are transferred to a pension liability fund. By doing this, Keva seeks returns on investments that will enable it to finance part of future pension payments without having to excessively raise pension contributions even after baby-boomers have retired.
Keva’s contribution income in 2012 amounted to approximately EUR 4.8 billion and Keva paid out approximately EUR 3.8 billion in municipal sector pensions, which means that about EUR 1 billion could be invested in the fund. At the end of December 2012, Keva’s pension liability fund, i.e. the amount of funds invested had a market value of around EUR 34.4 billion.
For the time being, all returns from investment operations were funded; in the future, returns will also be used for pension payments.
Keva started funding in 1988. Keva’s pension liability fund is not tied to individual pension liabilities; it is a buffer fund.
Keva is a long-term investor
Keva is a long-term investor. Investments are targeted to support a stable level of pension contributions in the best possible way.
The cumulative real return in 1988 - 2012 was 5.3% per annum, excluding capital weighting. The capital-weighted cumulative real return in 1988 - 2012 was 3.7% per annum.
Investments are required by law to fulfill security, profitability, liquidity and diversification requirements. Diversification minimizes the unavoidable risks involved in investment operations.
Amount and breakdown of investments
The market value of Keva’s investments was approximately EUR 34.4 billion on 31 December 2012.
Breakdown of investments on 31 December 2012:
- Fixed-income investments (bonds, money market investments and loans) 48.0%
- Listed equities 36.2%
- Real estate investments 7.9%
- Private equity investments 5.0%
- Hedge-fund investments 2.3%
- Commodity investments 0.6%
Investments are diversified over a number of sectors, currencies and geographic areas, among other things. 19% of investments are in Finland.
