Pensions proposal falls in face of AKAVA and STTK opposition

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In August 2002, a Finnish working group on pensions reform made a proposal for a new method of calculating pensions. However, the proposal fell because of opposition from the Finnish Confederation of Salaried Employees (STTK) and the Confederation of Unions for Academic Professionals (AKAVA), despite support from the Central Organisation of Finnish Trade Unions (SAK), the Confederation of Finnish Industry and Employers (TT) and the Employers’ Confederation of Service Industries (PT). The social partners have been given an extension for their negotiations, but the final decision will probably be referred to the government.

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 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, with the aim of finding a final solution to coincide with the government’s preparations for the 2003 state budget. The group produced a proposal in August 2002. 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 - the Confederation of Finnish Industry and Employers (Teollisuuden ja Työnantajain Keskusliitto, TT) and the Employers’ Confederation of Service Industries (Palvelutyönantajat, PT) - would have accepted the proposal, as would the blue-collar Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK).

After the failure of the proposal, the social partners were given an extension for their discussions on the matter. In the event that they cannot agree, the matter will probably be referred for resolution by the government, whose aim is to pass new pensions legislation in autumn 2002, before the parliamentary elections in spring 2003.

Background

The major factor behind the current pensions reform is the pressure that will be put on the financial basis of the pensions system when large age cohorts retire in a few years time. The aim of the working group was to motivate employees to stay longer in working life, so that the contributions to pensions of those still in work will not become too large. A further aim was to clarify the scheme to correspond better with the present labour market. Furthermore, it sought to address the impact on pensions of the instability of working careers and the spread of 'atypical' employment relationships. The current pensions model, which was built on the presumption that careers would continue on a steady and progressive basis, no longer guarantees sufficient pension security.

Content of the proposal

The working group considering the new pensions calculation method proposed 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. The system would be applied in an adapted form to the public sector.

However, this was not seen by all the trade unions as an improvement on the fall-back solution previously agreed in November 2001. Then it was decided that if a new general calculation method could not be agreed on in the working group, from the beginning of 2005 until the end of 2010 pensions would be calculated either according to the present model or based on the whole working life of the employee, whichever was more advantageous for the individual retiree. By the end of 2008, at the latest, a single model for calculating pensions should be agreed upon, which would take effect at the beginning of 2011. According to AKAVA, this solution would have been a better result for its members.

Government will probably make final decision

After the working group proposal fell due to the resistance of AKAVA and STTK, the government announced that was considering taking its own action in order to carry out the pensions reform. Furthermore, TT was prepared to pass the issue on to be decided by the government. However, the social partners were given an extension to their negotiations.

STTK and AKAVA argue that the group's August proposal was not a real compromise, because the starting-point of the reform would still be to calculate pensions on the basis of earnings over the whole career - a method to which these organisations are opposed. According to AKAVA, this 'average-pay method' is disadvantageous for women, for well-educated groups and for people who progress in their career. Both STTK and AKAVA would like to continue to calculate pensions in the present way, based on the last 10 years of paid employment, as careers in the white-collar and professional jobs held by their members are generally more stable, with pay levels increasing towards retirement.

SAK would have accepted the working group's proposal. It considers it important to reform the pension scheme in such a way that pensions would be calculated on the basis of earnings over the whole career, which would benefit its blue-collar members who now often have fragmented careers without necessarily any improvement in pay in the years before retirement.

The employers' organisation for the service sector, PT, hopes that the dispute can be resolved swiftly. It believes that the pension reform as a whole is important, creating a good basis for alleviating the increased pressures of pension expenditure.

Commentary

The pension reform, which the social partners have been considering for a long time, is one of the most important reforms of the last few years. Its purpose is to clarify the pensions scheme and decrease pension contribution pressures when major age cohorts leave working life. AKAVA and STTK are strongly defending the current entitlements of their members, from the perspective of women and people with a higher level of education. Well-educated people tend to enter working life quite late, at slightly under the age of 30, and often work in the public sector, frequently earning less than those with less education. However, their careers tend to follow an upward trend, so that it has been beneficial for them to calculate their pension based on earnings during the final 10 years of work. In the past, the wages of other workers have also followed an upward trend, and they have thus been satisfied with the way that pensions are calculated. However, radical changes in the labour market have changed this situation, thus causing SAK to support a reform of the pension calculation method, bringing it close to the positions of the employers. This break in the trade union front has led to a stand-off between highly and less educated groups. A background factor is the trade unions' wishes to raise their profile among their members at a time when it appears that the level of union membership is declining. (Juha Hietanen, Ministry of Labour)