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The Finnish pension system ranked fifth in the 2017 international Melbourne Mercer Global Pension Index (MMGPI) comparison published in October. For the fourth time in a row, Finland topped the integrity and transparency sub-indexes, but the country’s overall ranking fell by one notch.

The MMGPI is an annually compiled international comparison of pension schemes, now carried out for the ninth time. The comparison included 30 countries and covers 60 per cent of the world’s population. Three categories – adequacy, sustainability and integrity – were compared using more than 40 indicators.

The Danish retirement income system topped the comparison for the sixth time in a row. The system in the Netherlands scored almost as many points, while the pension system in Australia ranked third.

Finland’s overall ranking fell by one notch, from fourth to fifth. Norway, a newcomer in the comparison, outranked Finland. Sweden ranked sixth, but the differences between the three Nordic countries are small.

In the 2016 comparison, the Finnish pension reform improved the sustainability of the country’s pension system. This year, the weak economic outlook, the rising public debt and the Finn’s poor interest in saving for retirement reduced the points for Finland.

Finland was among the top ten in all categories. For the fourth time in a row, Finland ranked #1 in the sub-indexes of integrity and transparency.

The suggested targets of improvement are the same as before: raising minimum pensions, improving the employment rates of the elderly and increasing the funding of pension assets. A better distribution of pension rights between spouses would also raise Finland’s overall score.

Real-time earnings data

The Income Register, operating as of the beginning of 2019, is a centralised national database for income data on an individual level. The registrar is the Finnish Tax Administration.

Employers will report the earnings of their workers to the register in connection with paying out wages and salaries. That way, the register will contain real-time earnings data.

Pension providers calculate pensions based on earnings. Thanks to the Income Register, the processing time of pension applications will be reduced. Since the earnings data is up-to-date, employers will no longer pay too little or too much in pension contributions.

Comparing data will become easier and neglects to take out pension insurance will be discovered at an earlier stage.

As of 2020, the Income Register will also contain data on all paid pensions and benefits.

Ilmarinen and Etera merging

The new leading pension provider will be Ilmarinen after it merges with Etera at the beginning of 2018. The new company will hold a 37% market share of the private-sector pension industry. Varma will continue as the most solvent pension provider.

The main driving force behind the merger is Ilmarinen’s desire to grow. Reducing costs is another. Thanks to the merger, the administrative costs of the earnings-related pension system are expected to go down by 4–5% (or €20 million) per year. “The new Ilmarinen aims to be the most cost-efficient pension insurance company by 2020,” says Timo Ritakallio, CEO of the present Ilmarinen.

Pension providers cannot use contribution rates as a tool of competition since the rates are the same for all. Client bonuses is another matter. The new Ilmarinen aims to offer the best client bonuses by reducing overlapping functions and improving profitability. Considerable cuts in the number of personnel are to be expected.

Singapore embraces older workers

The Re-Employment Act, passed in 2012, has been a success in the quickly ageing Singaporean society.

The official retirement age in Singapore is 62 years. Thanks to the Re-employment Act and amendments made to it in 2016, citizens (or those living permanently in the country) can choose to work until they turn 67. The Act does not apply to guest workers.

The act has had immediate, positive effects: in 2013, the employment rate of 55–64-year-olds rose by 2.8%. The average effective retirement age has also risen to more than 63 years. Each year, approximately 120,000 persons aged 62 are re-employed in Singapore. Almost all have retained their former pay level.

It’s a win-win situation: workers can earn a better pension by continuing at work and employers can benefit from the skills and experience of elderly workers. The Government in Singapore subsidises employers who re-employ older workers.



Finnish Centre for Pensions

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