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Pension reforms in Finland: background summary

The Finnish pension system, with is organised in 2 tiers, with a basic state pension and an insurance earnings system, is quite stable and able to face the future challenges, including the aging of the population. Reforms are negotiated between the government and the social partners, and are not especially controversial.

Characteristics of the Finnish pension system

  • Finland has two pension systems which complement each other: earnings-related pension earned by paid work and entrepreneurial activities and national pensions and guarantee pensions meant for those pensioners who have no earnings-related pension or whose pension is very small.
  • Both pension systems include old-age pension and disability pension. The beginning of old-age pension varies: earnings-related pension usually begins at the age of 63-68 with a bonus system if the insured extend their working life, and national pension at the age of 65. Persons who are incapable of working may receive disability pension before their old-age pension begins.
  • For the earnings-related pension, the employer chooses together with the trade unions one of the four accredited insurance companies, takes out a retirement pension insurance policy for all their employees and pays the insurance premiums. Entrepreneurs take care of their own insurance premiums.
  • Employers and employees finance earnings-related pension cover together. The employers collect their employees’ contribution from their pay and render this and their own share of the insurance fee to the pension institution. Authorised pension providers, pension funds and foundations take care of earnings-related pensions. The average contribution for employers is 24.0%, of which the employee’s share is 5.70% of the salary under 53 years, and 7.20% of the salary for employees aged 53 or more.
  • The amount of earnings-related pension depends on how long the person in question has been working and what his/her salary was. At best, earnings-related pension can be more than 60% of the salary.
  • The State Pension Fund (VER), a buffer fund for pensions, was established in 1990 to balance state pension expenditure. VER invests pension assets and helps the state to prepare for financing future pensions, taking into account the ageing population, in order to ensure that there will be no gap in the future for the payment of pensions. The market value of VER's investment portfolio was € 17.6 billion on 31 March 2016.

Pension reform in Finland 

  • Pension reforms in Finland are subject to tripartite negotiation, because the social partners have a say due to their role in initiating, financing, and managing the private sector earnings-related pension scheme, and there is also a general government interest as it employs civil servants and finances the expenditures for the self-employed.
  • Following a series of reforms since the 1990s, forecasts for pension expenditure growth have become increasingly moderate. A key aim in previous reforms was to address retirement patterns. Early retirement has declined systematically. But, after discussions beginning in 2007, a new reform was considered necessary in 2014 for the following reasons: the changes in the age structure, a too low total employment rate, in particular for 60–64-year-olds, the pressure to increase contributions affecting competitiveness negatively, the need to link the pension to longevity.
  • The main reform of the last years was adopted in 2014 and will be implemented on the 1st of January 2017, with the following measures:
    • The retirement age will rise gradually to 65: as of 2018, the old-age retirement age limit will rise by 3 months for each birth year cohort until the minimum old-age retirement age is 65 years. The maximum retirement age will also rise to about 70 years (five years more than the earliest eligible retirement age).
    • As of 2030, the retirement age will continue to change. It will be tied to the development of life expectancy and will be confirmed separately for each age group.
    • In future, pension will always accrue at an annual rate of 1.5% (instead of 1.7%) for everyone over the age of 17. A transition period will be in place for the changes in accrual rates until 2025, during which persons aged 53–62 will accrue pension at a rate of 1.7% each year.
    • The current part-time pension will be abolished and will be replaced by a partial early old-age pension, which can begin already at the age of 61. The amount is either 25 or 50% of the accrued pension. The partial early old-age pension is not tied to reduced working hours.
    • Introduction of a years-of-service pension for persons performing arduous work: it is possible to retire before the official retirement age of 63 for people who have performed strenuous and wearing work for at least 38 years.
    • If retirement is postponed past the lower age limit for retirement, a 0.4% increase for deferred retirement will be paid each month.
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