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Are retirees poor?

How is poverty measured? That is a key question when examining why retirees are said to be poor although studies show that their average income has improved.

The income poverty risk is the most frequently used indicator of poverty. As its name indicates, the income poverty risk depicts the risk or threat of poverty.

The income poverty risk is determined based on the family's total disposable income after taxes and other fees. This equivalent income includes, for example, earnings and capital income as well as received and paid income transfers (pensions and income support). The benefits relating to a shared household – the size and age structure of the family – are taken into account. The equivalent income is the same for all members of a household.

The income poverty risk is defined in relation to the median income of the entire population. The median income is the disposable income of an equivalent adult in a household in the middle of the income distribution in a year.

EU has set the income poverty risk at 60% of the population's median income. The OECD uses a limit of 50%. A higher limit means more people are at risk of income poverty.

The income poverty risk is relative: when the medial income rises, the income poverty risk level rises. That is why individuals may fall below the poverty risk level one year and be above it the next year, even if their own disposable income has remained unchanged.

In 2014, at a 60% limit, the income poverty risk in Finland was at €16,290 per year. 12.8% of Finnish retirees fell below the limit. At 50%, the income poverty risk drops to €13,570 per year, with only 4% of all retirees facing the risk of income poverty.

Conditions at work important

Postponing retirement is crucial as people live longer. A study by Noora Järnefelt and Satu Nivalainen shows that financial incentives are not the only reason why public sector wage earners have later retirement intentions (retirement at age 64 or older) than public sector wage earners. Also more favourable working conditions matter.

Recently, every third private sector workplace has dismissed workers. As a result, the motivation to continue working among those who have kept their jobs has declined.

Day-time work and the opportunity to develop at work increase the intentions of public sector workers to retire late.

The study, published by the Finnish Centre for Pensions, is based on the responses of 50-62-year-old wage earners in the Finnish Quality of Work Life Survey (Statistics Finland) in 2008 and 2013.

Pilot basic income scheme

€560 a month is how much 2,000 randomly selected unemployed Finns aged 25–58 years receive as a basic income. The Finnish government launched this two-year experiment on 1 Jan. 2017.

One of the aims of the basic income is to reduce bureaucracy. Instead of having to apply for several different social benefits, the selected recipients automatically receive this monthly lump sum of €560 per month.

Another – and much more important – aim of the basic income scheme is to boost employment. So far, unemployed people have been discouraged from taking up smaller jobs as the wages they have received have reduced their social security benefits. With the basic income scheme, working pays off.

The current social security system in Finland has been developed over several decades, but its basis was constructed in an environment very different from the one we live in now. The basic income scheme creates flexibility in a world of atypical employment relationships.

Avoid double insurance

The A1 certificate ensures that workers are insured in only one country at a time, as the EU regulations on social security prescribe.

For example, Estonians who work in Finland are to be insured in Finland. But if they are posted to Finland from Estonia, they should be insured in Estonia. If they work both in Estonia and Finland, they need an A1 certificate to attest which country’s social security laws apply.

Each year, the Finnish Centre for Pensions sorts out a few hundred cases of double insurance. It is important to correct the mistakes as soon as possible since it is difficult (sometimes impossible) to correct pension contributions and benefits in retrospect.

In 2013–2014 the Finnish Centre for Pensions conducted a massive campaign in Estonia about double insurance. The campaign has paid off.

In 2011, approximately 18% of all A1 certificates granted from abroad to Finland were issued in Estonia. In 2016, the figure was 70%.

Translator Lena Koski, Finnish Centre for Pensions.
Translator Lena Koski, Finnish Centre for Pensions.



Finnish Centre for Pensions

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