Pros of pension reform
Clear and equal principles. These are the pros of the 2017 pension reform according to Sini Kivihuhta, Deputy CEO of Ilmarinen Mutual Pension Insurance Company.
As of 1.1.2017, the retirement age will rise gradually. “The mechanism linking the retirement age to life expectancy is fair for all”, Kivihuhta explains.
The accrual rates will be standardised at 1.5 per cent from age 17 (or age 18 for the self-employed) until retirement. “If you continue working until your target retirement age, the effects of the life expectancy coefficient will be nullified. If you work past your general retirement age, you will be awarded a deferral increment,” Kivihuhta explains. The increment will compensate for the loss of pension accrual when the accelerated accrual rate is abolished.
Another advantage with the reform is that the annual earnings on which the pension is based will no longer be reduced with the employee’s contributions. As a result, the pensions will be higher.
In the future, it will be possible to retire on a partial pension before reaching the general retirement age. This means, however, that the overall pension will be reduced somewhat.
Increasing longevity is the main reason for a need to reform the pension system. Kivihuhta is pleased that the reform was carefully prepared. “Thanks to anticipatory planning and scenarios and projections made by the Finnish Centre for Pensions, pension provision has been made sustainable long term” Kivihuhta concludes. The trust in the pension system is also strengthened by the fact that pensions in payment have not been cut, as they have been in many other countries.
Unequal Disability Risks
Socioeconomic inequality remains unchanged although the incidence of disability retirement has decreased in the past few decades. A study by Anu Polvinen at the Finnish Centre for Pensions shows that blue-collar workers have a six times higher risk of retiring on a disability pension compared to upper white-collar workers.
Large inequalities were found in disability retirement due to musculoskeletal diseases, psychoactive substance use and cardiovascular diseases. Socioeconomic differences due to depression were small or non-existent and larger in younger compared to older age groups.
Socioeconomic inequality was largely mediated through working conditions and ill-health. In musculoskeletal diseases, the contribution of working conditions was especially clear. Thus, improving working conditions would reduce retirement on a disability pension.
Comparing contribution levels
Pension contribution levels vary considerably in Europe. A report by the Finnish Centre for Pensions, to be published in November, compares the overall contribution levels of 9 European countries.
To achieve more comparable results, the study has focused on overall contribution levels of Tier 1 and Tier 2 pensions.
Comparing statutory pension contributions shows that Finland has the second highest contribution level, exceeded only by that of Austria. However, when comparing the overall pension contribution levels, Finland ranges in the middle.
The comparison shows that the employee’s component of the pension contribution in Finland is the second smallest (after that in Denmark), while the employer’s component is higher only in Sweden. In many European countries, such as Germany and Switzerland, the contribution is divided more or less equally between employers and employees.
Help with pensions from abroad
Claiming a foreign pension requires coordinated cooperation and support. More than 40 experts at the Department for International Pension Matters at the Finnish Centre for Pensions assist pension applicants living in Finland with their claims to EU/EEA or social security agreement countries.
The experts act as a link in the EU pension claim process between the Finnish pension providers, the Social Insurance Institution of Finland and foreign liaison bodies. They assist and acquire the required additional information to file claims abroad. They do not grant pensions, however.
According to Max Rönnberg, Head of Department, a near-future aim is to introduce e-services to offer customers real-time information about their claims. In addition, once the Electronic Exchange of Social Security Information (EESSI) system hosted by the European Commission is implemented, the Finnish Centre for Pensions will join it.