Pensions Changing Course in Europe
The pension provision of Europeans is being overrun in Brussels by economic policy and free competition. Wolfgang Schultz-Weidner, European Pension Policy Adviser at ESIP, is worried.
“The Commission no longer finds old age as a social risk but thinks that citizens should work for as long as possible, regardless of age. I doubt that the working capacity will improve at the same rate as life expectancy,” Schultz-Weidner explains.
The EU would like to increasingly regulate the pension systems of its Member States as pensions form a considerable part of the public finances in many EU countries. The Finnish statutory earnings-related pension provision forms an exception: in practice, the pension assets are not part of the state budget.
“The Commission wants to develop voluntary pension insurance, which fall within the scope of free competition in Europe. Developing them would open up a vast European market for insurance and financial institutions,” Schultz-Weidner states.
Finland’s earnings-related pensions are protected from such cross-border free competition through an agreement made when the country joined the EU. Here, private-sector pension institutions are excluded from the scope of the EU directive for life insurance. Foreign insurance companies may operate in Finland, but only under Finnish legislation.
The Commission could question the status of the Finnish earnings-related pension system only if Finland itself were to significantly change the regulation and execution of that system. This could happen if earnings-related pension assets were used for other purposes than pension provision.
Increased Pension Assets
Pension assets relative to GDP have grown from 69% to 85% in the past three years.
At year-end 2014, the market value of earnings-related pension investments amounted to as much as EUR 172.5 billion. Investments in fixed assets accounted for 41.2%, while those in real estate accounted for 9.9% and those in other investments for 48.9%.
The return for the entire earnings-related pension field in 2014 was 7.4%. Investments in fixed assets yielded a return of 4.4%, while those in real estate yielded a return of 5.4%. Other investments, mainly in listed shares, yielded a return of 10.7%.
The average annual return for investments in fixed assets in 1998-2014 was 5.4%, in real estate 5.4%, and in other investments, i.e. mainly in shares and share-like instruments, including hedge funds, 10.7%.
Average Monthly Pension EUR 1,588
More than 1.5 million Finnish citizens received a pension in Finland in 2014.
On average, men received a higher pension than women did. The average monthly pension for men in 2014 was EUR 1,803 while it was EUR 1,411 for women.
For each euro received by men, women receive 78 cents. Women’s lower pensions are explained by the gender differences in wages and the length of working lives. Some women have not been working at all or their earnings-related pensions have been very small.
Every fourth Finnish citizen received some form of pension in 2014: an old-age, a disability, survivors’ or part-time pension.
A total of EUR 27.5 billion were paid out in pensions in Finland in 2014. EUR 24.4. billion were earnings-related pensions.
Earnings-related pensions were paid out to 1,422,000 persons, most of whom received an old-age pension. The number of disability pension recipients (173,000 persons) decreased by 10,000 compared with in 2013.
Reduced Trust in Pension Provisions
Citizens’ trust in the pension provision was measured by the Finnish Centre for Pensions in 2011 and 2014. The questionnaire was sent to 18-67-year-old Finnish citizens, of whom more than 2,000 responded both years.
In nearly all respects, the trust of the Finnish people in the pension provision and the pension system has declined in the past three years.
In 2014, 54% of the respondents (62% in 2011) believed that the pension will guarantee a reasonable income in old age. Less than half of the women were of this opinion.
Those who have already retired felt more often than others that the promised pensions will be paid out also in the future. Only every fourth person in working life agreed with this.
A mere 30% (36%) of Finns found the Finnish pension system to be fair. Men were particularly more critical this time compared to the previous survey.
In 2014, 53% (60%) found the payment burden of the young to be too high. The younger cohorts are more critical in this respect than the older ones.
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