Europe needs retail saving, investing and opportunities for wealth creation – Finland is undermining voluntary pension saving

Finance Finland’s CEO Arno Ahosniemi: “Sweden, for example, has a much more firmly established culture of saving and investing than Finland. Sweden is also clearly wealthier measured on several indices.”

A discouraging pension decision

In its recent spending limits session, the Finnish government decided to discontinue the tax subsidy for voluntary pension savings.

• Voluntary pension saving has so far been supported with tax subsidies.
• The various changes made to the subsidies over the years have discouraged pension saving.
• Now the tax subsidy will be fully discontinued.

“The importance of promoting saving and investing cannot be overstated. The government even acknowledged this in its own programme by committing to promoting voluntary pension saving. The decision to discontinue tax subsidies represents a complete U-turn from the government’s earlier position and will have Finland swimming against the European tide.”

Incentives and subsidies are an effective tool

According to Ahosniemi, voluntary pension saving is an excellent way to complement statutory pension coverage and alleviate the public sector’s cost pressures.

“Subsidies and incentives can be game changers. The Swedish investment savings accounts are an excellent example of this.”

• Only a small tax is levied on the account once a year.
• Otherwise the Swedish investment savings accounts are tax exempt, even when invested funds are withdrawn.

“Subsidies alone are not enough, though. We also need to work on fostering a culture of saving and investing. It’s difficult to get people to commit to long-term saving schemes, especially to pension saving that is tied to a certain age, without the subsidies that the government has now decided to discontinue.”

Staying on course is key

“Finns’ interest in saving and investing has climbed rapidly over the past decade, and we must ensure this trend continues. It will require tax subsidies, like in Sweden.”

Functioning capital markets are vital for Europe ‒ Competition with China and the US is intense

Capital markets include various forms of finance:

• Corporate finance
• Pension schemes
• Exchange listings
• Retail investment in equities, funds and life and pension insurance products
• Venture capital

Finance Finland’s CEO Arno Ahosniemi: “The functioning of capital markets is the undisputed talk of the town across the entire Union at the moment.

• Capital flows in markets like the US and Hong Kong, for example, are much bigger.
• In EU countries, the proportion of bank financing is traditionally very high.
• Europe needs functioning finance for example to achieve the green transition, foster innovation and enhance competitiveness.”

“All 27 EU member states are in favour of the development of deeper and more versatile European capital markets. But once we get down to details, the consensus starts to dissolve. One of the hottest points of debate is the relationship between national and union-level regulation.”

Starting point. For the most part, the EU member states agree that the cross-border movement of capital and business must be efficient. However, there is considerable variation in how the markets function in different regions and countries. “The Nordics are top performing countries in EU comparison: Sweden is at the top, and Finland is not far behind.”

Development targets:

• Regulation. “Obstacles in the provision of financial services must be dismantled and regulatory burden made lighter. The Commission has communicated these as its objectives, which is an excellent signal. EU-level regulation should be applied only when the obstacles of provision concern all EU member states.”
• Pensions. “Many countries have a funding gap in their employee pension schemes. Especially people in Southern Europe should be able to improve their preparedness for retirement.”
• Saving, investing and wealth creation. “Capital that is now lying idle in personal bank accounts should be steered towards investments.”

“One of the EU’s greatest strengths has been its single market, which enables the free movement of goods and services. The same principle must now be applied to capital. We must be able to dismantle regulation so that the European capital market can function better for everyone’s benefit.”

Text: Aaro Kajaste, MustRead

The article was originally published in Finnish in MustRead’s Brussels newsletter.