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Basic Income and Pension Provision

Will the basic income, if introduced, solve the problems of means-tested social security? How would it affect the financing of earnings-related pensions? These are questions that Olli Kangas, Research Director at Kela, is facing when being in charge of the basic income trial.

“If we introduce the basic income and it amounts to anything between EUR 1,300-1800, as suggested in the Netherlands and Switzerland, it would affect the willingness of low-income people to pay pension contributions,” Kangas argues. Similarly, Susan Kuivalainen, Research Manager at the Finnish Centre for Pensions, points out: “If the basic income leads to a weaker demand for employment, the wage sums and the earnings-related pension contributions will decline.”

Kuivalainen is critical about the basic income solving the problems of social security: “If we want to improve the incentives for the unemployed to return to work, we should develop unemployment security.” She also suspects that the basic income could mean smaller earnings-related pensions for women: “If the basic income is higher than the home care subsidy, for example, the mothers of small children may stay at home for a longer period of time.”

Jyri Liukko, Senior Researcher at the Finnish Centre for Pensions, points out that social insurance and the basic income are not benefits but pre-defined promises of a certain income level. “Closest to the basic income is the notion of a national insurance. That way, the relation of the basic income to the earnings-related income support would be the same as that of the guarantee pension to the earnings-related pension,” Liukko explains.

Pension Provision for Blue-collar Workers

Coping at work until retirement is nothing vocational students can take for granted. Musa Jallow, chair of the union for vocational students (Sakki ry), says investing in workers’ wellbeing is important: “The health of vocational students is poorer than that of other students. Their work is also often both physically and mentally harder.”

Jallow takes a neutral stance to the rising retirement age as retirement seems so far away. Today’s young students do not know what their exact target retirement age will be since it will be linked to the average life expectancy. What is known, though, is that it will be above 70. Thanks to the years-of-service pension, blue-collar workers may be able to retire already at age 63.

Jallow finally points out that many vocational students become self-employed, but they feel left alone. Vocational schools should therefore try to improve their students’ social skills and networks in order to help them cope at work.

Large Gender Gaps in Pensions in the EU

The largest gender gaps in pensions are to be found in the Netherlands, Luxembourg and Germany; the smallest in Estonia and Denmark. According to the Pension Adequacy Report (PAR), Finland ranges in the middle.

In the countries with the largest gaps, women receive nearly 50 per cent less in pension than men do. In the countries with the lowest gaps, the difference is only a few per cent. “Women work mainly part-time in countries like the Netherlands,” explains Niko Väänänen, Special Adviser at the Finnish Centre for Pensions.

The low gender gaps in Estonia and Denmark can be explained by the fact that the statutory pension provision rests mainly on a flat-rate pension.

The report finds the poverty of elderly women, which is considerable in Finland and Sweden compared to the rest of the EU, particularly alarming.

Underinsured Self-employment

Underinsured self-employment continues to be a problem. A study by the Finnish Centre for Pensions shows that the average annual earnings in 2014 of the self-employed was €27,100 while their average confirmed income amounted to €18,700. The average ratio between earnings and confirmed income was 69 per cent.

The ratio is the weaker the higher the earnings are. Although the earnings level of many self-employed is fairly good when measured in terms of taxable earnings, there is a clear group of underinsured self-employed persons.

Women’s confirmed income is closer to their taxable income than men’s. One explanation may be that women raise their confirmed income already at younger ages in preparation for family leaves.

The confirmed income is rarely adjusted. Three fourths of the reviewed self-employed had not made any adjustments to their confirmed income throughout their period of self-employment.

LENA KOSKI Translator Finnish Centre for Pensions
LENA KOSKI Translator Finnish Centre for Pensions

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