Cap pension costs
UNBALANCED FINANCING of pensions can be tackled by abolishing routes to early retirement, raising the retirement age or cutting pensions. Another alternative is to employ automatic stabilizing mechanisms.
Although the issue of stabilizing pension financing will not become acute in Finland until the 2050s, the alternatives to tackle the problem need to be addressed now. As a result of low birth rates, the number of pension contribution payers will become too low in the future.
Sweden keeps its contribution level stable through a balancing index. If pension financing becomes unbalanced, pension indexing is halted, or pensions may even be cut. When the balance is restored, pensions are raised to their normal levels.
The life expectancy coefficient is a stabilizing mechanism that Finland has copied from Sweden. In the long run, however, it will not be enough to battle the effects of dropping birth rates combined with low interest rates and extended life expectancy. “A moderate adjustment of pensions may be justified if it leads to sustainable benefits,” head of department Ismo Risku (Finnish Centre for Pensions) points out.
“It is very likely that we in Finland have to raise the contribution rates or cut future pension expenditure.”
Managing director Suvi-Anne Siimes (Finnish Pension Alliance TELA) argues that the effects of stabilizing pension financing should be considered for the entire pension system, not only for earnings-related pensions. “If income in retirement becomes increasingly uncertain for the low-income population, it will put pressure on raising national pensions,” Siimes explains.
Increasing pensioners’ risks is also problematic in terms of incentives. “If the significance of earnings-related pensions decreases for the low-income population, their interest in paying pension contributions and extending working lives might decrease.”
Siimes finds extending working lives to be the best solution to the problem of unstable pension financing.
New home port
KALASATAMA CAMPUS at Tukkutorinkuja 5, next to Redi shopping mall, will be the new home port of the Finnish Centre for Pensions as of the beginning of January 2021.
The office in Pasila will close its doors on 18 December. The move to new locations will not affect the services or operations of the Finnish Centre for Pensions.
The personnel has participated in the design of the multifunctional premises. The staff will no longer have their own, assigned rooms or desks but can select to work at any available workstation.
“We are known for our positive work atmosphere. Our sense of community and working alongside each other will increase at the Campus, as will transparency,” managing director Mikko Kautto explains.
The Customer Service Desk of the Finnish Centre for Pensions will move to the premises of International House Helsinki (IHH) at Lintulahdenkuja 2 as of January 2021.
Kalasatama Campus, owned by Varma, is packed with artificial intelligence. The building is energy efficient and has optimal indoor air quality. It has been awarded a BREEAM certificate.
Familiar with pensions?
ENOUGH AND ACCURATE knowledge of pensions support decision making. A fresh survey by the Finnish Centre for Pensions examines how well people (aged 20–67-years) feel they know their pensions and how well they actually know them.
Nearly 75% of the respondents new that the retirement age is not the same for all. More than 50% knew that the pension-declared income affects the amount of the future pension and the parental and sickness allowances. As many knew that a main part of the pension contributions paid now are used to finance pensions currently in payment. 20% knew that unemployed persons can draw a partial old-age pension. That pension accrues for periods of child home care and studies leading to a degree was the least well known.
The young stand out as a group whose subjective notion of their pension knowledge was poorer than average, but when measured with objective indicators, their knowledge was better than average.
Price tag on spare time
RETIRE NOW OR LATER? What will the price tag be if you decide to retire early? How much will your pension grow if you decide to continue working past your retirement age?
Projections made by development manager Heikki Tikanmäki (Finnish Centre for Pensions), using the ELSI microsimulation model, suggest that deferring retirement by one year may increase the total pension amount that you will receive for the rest of your life by around 3%.
If you retire late and continue working, you are also paid a wage for your work. That is why the additional year of working may raise your net income for the rest of your life by as much as 10 per cent.
Since women tend to live longer, the incentives to defer retirement are more favourable for women than men. Nevertheless, simulation shows that the majority would benefit more than average from deferring retirement.
The projection does not take a stand on what kind of decisions you should make. Your own preferences determine what is the right decision for you.