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MMGPI: Finland #4

Integrity and transparency, two top qualities of the Finnish pension system, helped the country land fourth in the international Melbourne Mercer Global Pension Index (MMGPI) comparison published in October 2016. The MMGPI assesses the pension schemes of various countries using the sub-indices of adequacy, sustainability and integrity.

The comparison included 27 countries. Once again, the best pension systems were found in Denmark and the Netherlands. Australia ranked 3rd. Finland rose by two notches and passed both Sweden and Switzerland.

Finland was evaluated based on the 2017 pension reform legislation that will come into force at the turn of the year.

”Finland’s position was strengthened by the decision to adjust the retirement ages. Our strength continues to lie in the way our pension scheme is supervised and governed,” explains Mikko Kautto, director at the Finnish Centre for Pensions.

The suggested targets of improvement were the same as last year: a higher minimum pension, higher pension contributions and a higher funding rate. A higher employment rate among the elderly would also improve Finland’s position.

The fourth target of improvement concerns the distribution of pension rights. In both Germany and the United States, for example, divorcing spouses have the right to the other spouse’s pension under certain conditions.

“Parliament decides on the minimum pension level. The employment rate largely depends on the willingness and possibilities of employers to employ elderly people. Sharing the pension rights between spouses has to do with value choices,” says Kautto.

How Much is Enough?

Two years’ wage sum, or seven years’ pension expenditure, is what the assets in pension funds amount to right now. Sounds like much, but relative to the future need, it isn’t.

The current pension assets and their returns would cover 28 per cent of pensions in payment and already accrued pensions. That leaves 72 per cent of pensions already accrued to be paid by present and future generations. On top of the pensions that will accrue in the future.

The contribution expenditure has exceeded the contribution income for a while. This state will become permanent as the majority of retirees will soon have accrued a pension throughout their working life. The return on pension investments is to finance the gap.

To avoid unreasonably high contribution increases in the future, the contribution rate must temporarily rise to 24.8 per cent towards the end of the decade, says the most recent long-term projections of the Finnish Centre for Pensions.

Protection Abroad

Social security agreements ensure that people who go to work in agreement countries will receive benefits across borders and not pay double contributions. The agreements specify, among other things, for how many years a posted employee can be covered by Finnish social security legislation.

EU legislation is applied in EU/EEA countries and Switzerland. Finland has concluded bilateral social security agreements with seven non-European countries or provinces (Canada, Quebec, the U.S.A., Israel, Chile, Australia and India). The negotiations with China are nearly completed and those with South Korea and Japan are under way.

A person from Finland posted abroad to a social security agreement country needs an A1 certificate for posted employees. The employer usually completes the application, which will then be processed by the Finnish Centre for Pensions.

Statistics on Retirees

Statistical facts on retirees in Finland for year-end 2015 show that 1,541,000 people received a pension. Old-age pensions were paid to 1,270,400 retirees, disability pensions to 222,000 retirees and part-time pensions to 12,100 retirees. Surviving spouse’s pensions were paid to 256,300 persons and orphan’s pensions to 18,900 children. One person may receive several pension types simultaneously.

Nearly 1,438,800 retired persons lived in Finland in 2015, or nearly 32 per cent of all people aged 16 or above.

Of the 55-59-year-olds, less than 15 per cent were retired in 2015 (>37% in 1990), while the figure for the 60-64-year-olds was 46 per cent (76%).

The majority of retirees receive their main income from earnings-related pensions. Of the retired men, 67 per cent received only an earnings-related pension. The equivalent figure for the retired women was 51 per cent. As little as 7 per cent of all retirees received only a national pension.

Finnish Centre for Pensions
LENA KOSKI Translator Finnish Centre for Pensions



Finnish Centre for Pensions

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