Part-time pensioners have long careers

A new report from the Finnish Centre for Pensions uses data from pension registers to study the characteristics of recipients of part-time pensions who retired between 2005 and 2009. The study found that those retiring on a part-time pension had a higher income than their peers. It also found that the pre-retirement earnings of those retiring on a part-time pension were around 30% higher and that they had enjoyed careers at least as long as or longer than their peers.

Part-time pensions have existed in Finland since 1987. They can be granted as a statutory earnings-related pension to both wage earners and self-employed people who move from full-time to part-time work. People who are aged 60–67 years are entitled to receive the part-time pension. A total of 105,000 people retired to a part-time pension between 1987 and the end of 2009.

Part-time pensions last for two to four years and most often end in people retiring fully and taking up their old-age pension. According to pension registers, over 70% of part-time pensioners move to the old-age pension and about 15% to a disability pension. Thus, it may be concluded that the part-time pension can postpone retirement to a disability pension. Part-time pensions can also end in unemployment or people entering full-time work again.

A key objective of the pension reform carried out in Finland in 2005 was to prolong careers. But does the part-time pension available in Finland help to extend careers? And how is retiring to a part-time pension influenced by the reform’s removal of other routes of early retirement apart from the part-time pension and disability pension?

A recent report (815Kb PDF) by Janne Salonen and Mervi Takala of the Finnish Centre for Pensions on part-time pensions has aroused much interest in the Finnish media. The report, which is based on data from the pension registers, looked mainly at recipients of part-time pensions who retired between 2005 and 2009.

Popularity of the part-time pension

After the law took effect in 1987, it took a few years before the use of part-time pensions began to spread, but since 1998 the number of part-time pensioners has grown rapidly (Figure 1). Since 2005, the take-up of part-time pensions has been around 2.5% of the number of people employed in the previous year.

Changes in the terms of the part-time pension are clearly visible in Figure 1 in the number of those who retired to a part-time pension in different years. In 1994, the age limit was lowered from 60 to 58, and in 1998, it was lowered temporarily to 56. The number of retirements to a part-time pension was the greatest in 2002 (over 14,000) before the age limit was raised back to 58. In 2010, the age limit went back to 60.

Length of career

The new study found that those who retire to a part-time pension tend to have a more solid working career behind them than others of the same age. All those who retired to a part-time pension between 2005 and 2009 had had a career at least as long or longer than others of the same age (Figure 2).

Incomes of part-time pensioners

The report found that those retiring to a part-time pension are on a significantly higher income than their working peers. The income of those who retired to a part-time pension in 2006–2009 was about 30% better before their retirement than the income of others of the same age who continued in full-time work. In addition, some of those retiring to a part-time pension had very large pensions.

The pension level of those who retired to a part-time pension rose between 2005 and 2009. Good pensions are a result of the part-time pensioners having had a solid career and, above all, a higher income level than others of the same age.

Retiring to a part-time pension does not seem to reduce the income level significantly. The study found that net income falls by about 10%.

Reference

Salonen, J. and Takala, M., Working career and income of part-time pensioners in Finland (815Kb PDF), Working Papers 2011:2, Helsinki, Finnish Centre for Pensions, 2011.

Irja Laamanen, Finnish Institute of Occupational Health