Finland: Wide ranging pension reforms agreed

A series of pension reforms will come into force in 2017 after public and private labour market organisations reached an agreement.

The reform to the earnings-related pension system will extend working life and reduce the sustainability gap of public finances. It will also tackle issues around a growing elderly population and the rising cost of retirement provision.

The labour market organisations that agreed on the deal included the Central Organisation of Finnish Trade Unions (SAK), the Confederation of Finnish Industries (EK), the Local Government Employees (KT) and the Finnish Confederation of Salaried Employees (STTK).

The Confederation of Unions for Professional and Managerial Staff in Finland (Akava), representing 600,000 white-collar employees, rejected the deal unanimously and decided to stay out of the agreement.

The deal includes a number of changes to the rules.

The retirement age will be gradually raised for people born in 1955 or later. As of 2017, the earliest eligibility age for an old age pension will be raised by three months per birth-year cohort until it reaches 65.

The upper age limit for the old age pension will be five years higher than the earliest eligibility age. As of 2027, the eligibility age for old age retirement will be linked to life expectancy so that the time spent working in relation to the time spent in retirement will remain at the 2025 level. The development will be monitored through tripartite negotiations every five years.

The current part-time pension will be abolished and replaced by a partial early old age retirement. A person can draw either 25% or 50% of the accrued old age pension at the age of 61. In some cases, a strenuous and extensive working life may offer the possibility to retire at 63.

Alongside the disability pension there will be a ‘years-of-service’ pension, which can be applied for after a working life spanning 38 years if the work is either physically or mentally wearing.

The accrual rates of the earnings-related pension will change so that the annual pension accrual rate of people of all ages will be 1.5% of wages or salary.

Further changes to earnings-related pension contributions will see benefits accrued from a full wage rather than a separate pensionable wage.

Akava decided not to sign up to the agreement because it believed the new system was not sufficient to encourage people to continue at work until retirement age.

The standardised pension accrual rate – in contrast to the previous system with higher accrual rates during the last few years on the labour market – is considered to discriminate against the highly educated, especially women, since a lengthy period of education and parental leave both shorten careers.

In the current system, periods outside the labour market can be caught up during the last years at work, when the accrual rates are higher.

However, according to an impact analysis by the Finnish Centre for Pensions, women will benefit more than men from the raised age limits. Because of their higher life expectancy, it is thought women may benefit proportionately more from their pension.

The Finnish Construction Trade Union (Rakennusliitto) held a two-hour national strike on 22 August 2014 to oppose the plan to increase the current minimum age for retirement to 63. According to the union, only 20% of its members currently retire at 63, the other 80% receive a disability pension or similar before that.

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