New compromise on pensions rejected by AKAVA

Download article in original language : FI0209107NFI.DOC

In September 2002, the Confederation of Unions for Academic Professionals (AKAVA) rejected a new compromise proposal for reforming the calculation of retirement pensions. The proposal, whereby pensions would be calculated on the basis of earnings over an employee's whole career, was approved by the other social partners, and will now form the basis for government legislation.

In November 2001, working groups involving the Finnish social partners, pension institutions and government agreed a series of pension and unemployment insurance reforms (FI0112170F). However, the deal left the controversial question of the basis for future retirement pension calculation to be decided by further discussions, with the choice between basing the pension on a person's earnings in their last 10 years at work (as at present), or over their whole employment history.

The discussions over the pension calculation method continued in the relevant working group, which produced a proposal in August 2002 (FI0208103F). This provided that the calculation of private sector retirement pensions should, from the beginning of 2005, be based on employees' earnings over their entire career. However, the pensions of people in employment in 2005 who retired before 2015 would be calculated according to the present scheme - ie based on the last 10 years of paid employment - if their pension would be higher if calculated by this method. However, this proposal fell due to opposition from the Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK) and the Confederation of Unions for Academic Professionals (Akateemisten Toimihenkilöiden Keskusjärjestö, AKAVA). The employers' organisations and the blue-collar Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK) would have accepted the proposal.

After the failure of the proposal, the social partners were given an extension for their discussions on the matter. In September 2002, AKAVA rejected a new compromise proposal, which was accepted by all the other social partner organisations, including STTK, which was satisfied by a number of changes to the previous version. The new scheme did not meet the negotiating goals set by AKAVA with regard to pensions calculation for employees with a higher level of education. Under the scheme agreed by the other organisations, pensions will be based on pay over the whole career. AKAVA believes that the proposal does not take sufficient account of differences in careers - especially those of its members, whose pay tends to rise towards retirement - and considers it problematic that the effect of the proposed new private sector scheme on the public sector has not been resolved.

In AKAVA's view , the proposed scheme will affect better educated workers more than other groups. It rejected the proposal for three reasons. First, it does not provide for enough pension entitlement to be accrued during periods away from work for studies or childcare. Second, while the proposal provides for pension entitlement to be accumulated at an increased rate from the age of 53, AKAVA wanted this to start from the age of 40 or 45. Third, AKAVA suspects that the proposed solution will be too expensive and result in pressure to increase pension contributions (under the proposal, contributions will increase from the age of 53).

Under the proposed new scheme, from 1 January 2005 pensions will be calculated on the basis of earnings over a worker's whole career. People who retire before 2012 may have their pension calculated on the basis of the old scheme (ie based on earnings in the last 10 years of employment), if the employment relationship from which they retire was already in place on 1 January 2005, and if the old calculation method is more beneficial to the employee.

The chair of AKAVA, Risto Piekka, was in a difficult position in the talks. He would have approved the compromise agreed by the other social partners, regarding it as the best result that could be achieved. However, the AKAVA board did not support his position and the proposal was rejected. The same thing happened in 2000 when signing the current two-year national incomes policy agreement was under discussion (FI0012170F). The AKAVA chair was prepared to sign up to the agreement, while the member unions rejected it.

The government has now started to prepare new pensions legislation based on the proposal agreed by the other social partner organisations.