Changes in work and society
Scenario calculations are used to assess the impacts of changes in work on the outlook for the pension system and for public finances. The recent calculations by Sitra and the Finnish Centre for Pensions compare the effects of different employment rates.
If the growth of earnings were to stagnate and the investment returns of the pension system remained at a low level, public debt and the sustainability gap would grow significantly. As a result, the pressure to raise the earnings-related pension contributions would be around four percentage points.
On the other hand, if the employment rate were to rise to 80 per cent by 2030 through a boost in entrepreneurship, the sustainability gap in public finances would narrow to almost nil. As a result, the pension contributions could be lowered.
Thums up for pensions
The pension barometer conducted by the Finnish Centre for Pensions earlier this year yielded surprising results. The youth in Finland have a higher trust in and are more familiar with the pension system than the rest of the population.
“71% of the under-25-year-olds in Finland trust that the statutory pension system will provide for them in old age, in case of disability or the loss of a family wage earner,” says Susan Kuivalainen, Head of Research (Finnish Centre for Pensions). Nearly 80% of the young in this age group also know how pension funds are earned, and two out of three know that the retirement ages are rising.
Statistical researcher Sami Myllyniemi (Finnish Youth Research Society) thinks that the main reason behind the high trust among the young is that they, when it comes to pensions, form a spectator society: “The majority of them believes, or at least hopes, that the pension system will work without their having to think about it.”
Statistics on new pension
The partial old-age pension was paid to 7,600 persons by the end of July 2017. The figure is expected to rise to 11,000 by the end of the year.
The partial old-age pension can be taken early, at one’s retirement age or late. By the end of July 2017, 6,500 persons had retired early and 1,000 persons late.
The pension taken out can be 25% or 50% of the old-age pension accrued by the time of retirement. Most applicants applied for 50% of their pension. 14% of the female applicants and 8% of the male applicants drew 25% of their accrued old-age pension.
The applicants may but are not required to work while drawing the partial old-age pension. 80% of the female applicants and 75% of the men were working while drawing the partial old-age pension. More than 15% of the applicants who were born in 1955 or 1956 were unemployed.
The majority (70%) of the applications by the end of July 2017 were from people who work in the private sector. 60% of the applicants were men.
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Freedom and responsibility
Pension Freedom, introduced in 2015, gives all British citizens aged 55 or more the right to do what they want with their pension savings. Two years later, more than one million people have withdrawn money from their pension pot.
Director Richard Parkin (Fidelity Investments) finds the freedom problematic: “People want to withdraw money just because they can.” It is particularly worrisome that only 10% of the one million who have made withdrawals have turned to Pension Wise for advice.
Fiona Jarvis, founder of the website Blue Badge Style, is one of the many who have used part of their pension savings to start a business. They are part of the olderpreneur phenomenon in Great Britain that has gained strength since Pension Freedom was launched. Last year, 120,000 new businesses were established by over 50-year-olds. Like Jarvis, they see their business providing their future pension. Also Keith McLean, the owner of Shambles Tavern in York, has expanded his business with his pension funds. He asks: “Why should I keep my pension invested in other people’s companies when I can use it to make my own business grow?” But what happens if their businesses fail?
Researcher Daniela Silcock (Pension Policy Institute) is worried about the pensions of the self-employed. Only 27% of all self-employed in Britain save for retirement. But very few businesses are valuable enough to finance retirement when sold.
Silcock further points out that the effects of Pension Freedom cannot be estimated until after 15–20 years when those who have withdrawn lump sums from their pension savings approach retirement age. What is clear, though, is that the freedom and the responsibility now lie with the individual.