Agreement reached over early retirement and pensions

Download article in original language : FI9908114FFI.DOC

In July 1999, the Finnish social partners reached an agreement on some major reforms to early retirement and pensions. These reforms, together with the programme for older workers and the third stage of a scheme to fund adult training out of unemployment insurance, aim to increase the average retirement age step by step.

In July 1999, after a long period of disagreement on the subject, the social partners and representatives of the insurance companies that handle employees' pensions reached a consensus on proposals concerning reform of pensions and early retirement in the private sector. The possibility of applying the proposals to public sector pensions will be discussed separately. The solution to the dispute is regarded in some quarters as a significant triumph for the social partners and an indication of well-functioning cooperation.

The issue of early retirement and pensions has been high on the agenda for some time. Employers have been critical of existing arrangements, whereby workers may leave working life at the age of 55, receive incomes-related unemployment benefit up to the age of 60 and then automatically be granted an "unemployment pension" and, at the age of 65, a normal retirement pension (FI9904103N). Concern about an early average age of retirement has also become a political priority, and the rainbow coalition government which was reformed in April 1999 made raising the average age part of its programme (FI9904101F). The programme states that: "Changes will be introduced in working life, measures to maintain the capacity to work and educational policy as well in the pension and the unemployment security system that will encourage employers to retain in their service and recruit also older employees. These changes will be designed to keep older employees in work and in the labour market. The aim is to increase the share of those in work among the working population and to extend in the long term the average age of leaving the labour market by about two-three years to be closer to the normal age of retirement and thus reduce the pressures to increase pension premiums." The July agreement is in accordance with these goals, and it can thus be said that tripartite cooperation has also worked well in this respect.

Points of agreement

The negotiating parties agreed on the following measures in July:

  • the employers' and employees' organisations will, together with the companies handling employee pensions, launch a broad-based programme aimed at improving opportunities for older workers to continue in working life for longer than was previously possible;
  • the entitlement of those with pension insurance to be considered for possible work rehabilitation at an early stage will be extended gradually. There will be an endeavour, as opportunity permits, to provide employment to older unemployed people through the normal labour market. If this does not succeed, the labour administration will implement other measures aimed at providing active employment for those people;
  • for workers hired when over 50 years of age, the costs of any unemployment and disability pensions they are receiving will no longer be payable by the employer during the first three years of the employment relationship. Employer contributions to unemployment pensions will be determined in the same way as disability pension contributions are calculated at present and thus increases, though the maximum possible employer contribution will be 80% of the total;
  • no changes are proposed in the age limits for receiving unemployment pensions, but the calculation of the amount of the pension will be changed so that any increase in unemployment pension entitlement that would have accrued from the period between the onset of pensionable status and the retirement age is excluded. The change does not affect any old-age or dependant's pension that is payable following the unemployment pension. The requirement as to this period - which has been a condition for receiving an unemployment pension - will be done away with, with the effect that all those who are 60 or over and have been unemployed for a long period will be entitled to an unemployment pension, irrespective of the age at which they became unemployed; and
  • for those born in 1944 and after, the minimum age limit for receiving an individual early retirement pension will be raised to 60. In the quest for a suitable age minimum limit for a part-time pension, the trial age limit of 56 will continue to be used until the end of 2002.

Programme for older workers operates along same lines

As well as the new pension reform, Finland's programme for older workers (FI9708125F) - launched in 1998 (FI9803155N) and carried out by various ministries, the social partners and some public institutions - is aimed at raising the average retirement age. The programme comprises 40 measures, including: various fact-finding, educational and experimental projects; research and improvement activities; modernisation of the structure of working life and of related legislation; and communication. Support for service structures in society and also for "working communities" is considered especially important. Development of adult training is one of the measures involved. The programme supports the modernisation of the structure of labour market policy, which is being carried out with the aim of producing a model that utilises and supports unemployed people's own initiative. This structural modernisation, together with a survey of needs among older people unemployed for a long period, conducted as part of the programme, promotes the aims of the programme - for example, needs for training and rehabilitation will be charted systematically. In 1998, the employment rate for people aged 50-59 increased for the first time since 1993.

Legislative measures have also been taken to encourage older workers to stay in working life instead of retiring prematurely on a full pension. The age limit for a part-time pension has been lowered from 58 to 56 years until the end of 2000 (FI9801145F), and employers are obliged to try to arrange part-time work for those willing to become part-time pensioners. After the age limit was lowered at the end of 1998, the number of part-time pensioners increased noticeably. Older unemployed people now have the possibility of accepting a low-paid temporary job without it lowering their future unemployment pension.

Working group studies training guarantee scheme

A tripartite working group set up by the Council of State has discussed how the third phase of the so-called "adult training guarantee" scheme - adult training financed by incomes-related unemployment benefit funds - is to be implemented (FI9704110N). The group has also mapped the development of vocational training for adults. The intermediate report of the group, published in July 1999, also includes some alternative models for financing adult training. The work is planned to continue until the end of the year. The July report was unanimous, indicating that the third phase is going ahead peaceably and may have an effect in the fight against early retirement. However, the costs of the system could still give rise to severe disagreement.

Commentary

Early retirement has been a problem in Finland for a long time, and the above measures will be used in an attempt to resolve it. The dispute has now been successfully dealt with, before the start of the upcoming talks over a new incomes policy agreement to run from 2000 (FI9905104F). While the social partners can be given full credit for the agreement, government pressure also underlies it to some extent. Had no solution been reached, the government would have made a legislative proposal on its own.

It could be considered as a victory for employees that employers who use early retirement as a method for rationalisation will be punished by increasing the employer contribution to unemployment pensions. On the other hand, the attractiveness of early retirement will be weakened by cutting the level of benefit for those born after 1944. At the same time, the programme for older workers and the third phase of the adult training guarantee scheme may significantly boost the ability of older workers to cope with their jobs and could promote a step-by-step raising of the retirement age. (Juha Hietanen, Ministry of Labour)

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Add new comment