Social partners agree to increase in pension contributions
Social partners have reached agreement on the extent of pension contributions for employers and employees in the next two years. By means of increased contributions, all parties wish to secure the financing of earnings-related pensions in the future, in light of the ageing of the population in Finland.
Social partners have reached agreement (in Finnish, 27.5Kb MS Word doc) on the extent of future pension contributions for employers and employees. In 2007, pension contributions will remain unchanged, but in 2008, contributions will increase by 0.2 percentage points. Half of this increase will affect employees’ pension contributions and the other half will be added to employers’ social security payments. Signatories of the new agreement include, on the trade union side, the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), the Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK), the Confederation of Unions for Academic Professionals (Akateemisten Toimihenkilöiden Keskusjärjestö, AKAVA) and, on the employer side, the Confederation of Finnish Industries (Elinkeinoelämän keskusliitto, EK).
As stipulated in the Employees’ Pension Act (TEL), the employees’ pension insurance contribution is paid by both the employer and the employee. The contribution is used to help finance current and future earnings-related pensions. In 2006, the average pension contribution amounted to 21.5% of wages. Employees under 53 years of age contributed 4.3% of their wage, while employees older than 53 years of age contributed 5.4%. The average payment for employees amounted to 4.6% of wages, while employers paid on average 16.5% of the contributions.
Growing number of pensioners
With the rise in pension contributions, labour organisations prepare for the consequences of the retirement of employees born into the so-called baby-boom generation. The population trend used in the calculation of pension contributions follows the population forecast (2004–2040), published by Statistics Finland in the autumn of 2004. According to this forecast, the relative proportion of citizens reaching retirement age will increase from 16% to 27% in 30 years. The old-age dependency ratio, which represents the proportion of people having reached the age of 65 years in relation to persons aged 15–64 years, is expected to increase from 24% to 45%.
Views of the social partners
Trade unions
According to SAK, this increase in pension contributions will secure the impending financing of earnings-related pensions in the future, given the ageing of the population. It will also allow for a fair level of payment between generations of people. Director of SAK, Pertti Parmanne, stated that the outcome of the negotiations shows that labour market organisations do have the ability to manage earnings-related pensions. In his view, the compromise reached after difficult negotiations will help to regulate the financing of pensions when people born into the baby-boom generation will retire.
According to STTK Secretary General, Seppo Junttila, the outcome strengthens the credibility of the labour market system and the ability to address the challenges concerning the financing of pensions. Mr Junttila added that employees can now look forward with confidence to their retirement age. AKAVA considers that a consensual solution was crucial to the credibility of pension policy, and that with the current negotiation system a liable pension policy is possible. According to AKAVA Negotiating Manager, Markku Lemmetty, social parties have now a mutual understanding of a steady and predictable payment trend.
Employers
EK accepted the solution, but consider that increasing contribution payments is not the only solution to the problem of financing pensions. The employer organisation emphasises that the problem should continue to be discussed in future annual negotiations. Moreover, the organisation believes that for companies with less than 50 employees, the social security contribution should be 0.3 percentage points lower.
Commentary
The level of pension contributions is decided within the social partner working group whose current Chair, Kari Puro, is a former Chief Executive Officer (CEO) of Ilmarinen Mutual Pension Insurance Company, one of the companies specialising in managing statutory earnings-related pension insurance. The small increase in pension contributions can lessen the importance in principle of the solution reached. Director of Labour and Social Legislation at EK, Lasse Laatunen, highlighted that if the solution had not been reached, it might have been the beginning of a ‘long-lasting quarrelsome period in the labour market’. If the working group could not succeed in finding a compromise, the entire ability to make decisions would be hanging in the balance.
Pertti Jokivuori, Statistics Finland