Finland: Social partners’ involvement in pension reform in the EU

  • Observatory: EurWORK
  • Topic:
  • Agreements,
  • Collective bargaining,
  • Inequality,
  • Social dialogue,
  • Working conditions and sustainable work,
  • Industrial relations,
  • Published on: 03 October 2013



About
Country:
Finland
Author:
Pertti Jokivuori
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

In Finland, the main pension scheme is a legislated and compulsory earnings-related scheme, which is supplemented by the residence-based, flat-rate pension scheme. This includes a defined benefit pay-related pension that accrues from work, as well as residence-based national pension and guarantee pension that ensure minimum security. The pay-related pension security is financed mainly through employer and employee contributions. The state participates in the financing of pensions for the self-employed, farmers and seafarers. The state, the employees and the employers, as well as the self-employed, all influence the development of the legislation on the pay-related pensions. Thus the pay-related pension scheme has a tripartite negotiation system.

1. National pension policy context

1.1 During the recent years (since 2008) has pension reform been in the agenda of the government and/or social partners?

Government’s agenda:

  • ☐ No
  • ☐Yes: X Very high on the agenda ☐Rather high in the agenda ☐On the agenda but not high

The pension reform that is a raise of (minimum) retirement age has long been on the governmental agenda. However, when the current “six-pack” government was formed in spring 2011 the Social Democratic Party announced that it does not want an increase in the minimum age for old-age pension from the present 63 in this electoral term.

Social Partners’ agenda:

  • ☐No
  • ☐Yes: X Very high on the agenda ☐Rather high in the agenda ☐On the agenda but not high

The major pension reform came into effect on 1 January 2005. The reform means that pensions have been calculated in a new way since 2005. The most significant changes in the extensive pension reform were that income throughout the career started to be taken into account in pension qualifying pay, a flexible retirement age between 63 and 68 was introduced, the age limit for anticipatory pensions was raised, unemployment pension and individual anticipatory pension were abolished and the impact of increasing life expectancy started to be taken into account on pension calculation.

The present pension system allows employees to retire between the ages of 63 and 68. However, the actual average retirement age has been much lower because of the large number of workers who have stopped work on grounds of ill-health and claimed disability allowance. In 2011, the average retirement age was 60.5, up from 59.6 in 2010.

During the last years, labour market organisations have been holding discussions on a broad-ranging package which would extend Finnish working career, postpone the age at which people retire, and reduce the pressures for raising work pension payouts in the coming years.

In February 2009, the government announced a plan to gradually increase the retirement age to 65 years from the present 63 years of age. The government made the decision at a meeting which sought to devise ways to maintain the sustainability of pension funds even after the current economic crisis, which is set to increase the state’s debt. Then, the government’s proposal to raise the retirement age without consulting the social partners generated massive trade union mobilization against the reforms. The presidents of three trade union confederations accused the government of abandoning the traditional Finnish tripartite process, and the possibility of a general strike was threatened. As a result, the government started negotiations with the social partners and subsequently withdrew its earlier plans. (FI0903019I)

Trade union confederations were particularly critical of the fact that the government made the decision without the customary consultation with the social partner organisations. The President of the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), Lauri Ihalainen, stated then: ‘It is the first time in which the government makes unilateral decisions on such a significant issue of the work pension system and benefits, without listening to us’. (FI0903019I)

In light of the widespread criticisms, the government started negotiations with the social partner organisations. After two weeks, the government announced on 11 March that it had reached agreement with the various organisations over the dispute about the proposed increase in the retirement age. Under the new agreement, the government withdrew its earlier plans to gradually increase the retirement age from 63 to 65 years from 2011 onwards. Instead, the trade unions, employer organisations and government have committed themselves to raising the average age at which people leave the workplace – which currently stands at 59.4 years – by three years between now and 2025. (FI0903019I)

Later in 2009, the government appointed two tripartite working groups to draft proposals for pension system reforms, with the aim of persuading unions and employers to agree on ways of lengthening employees’ careers and working lives. The working group tasked with identifying ways of improving working life reached agreement. The second group, discussing the raising of the retirement age, did not.

Discussions about how to tackle the issues raised by Finland’s ageing population have been stalled for some time, but in February 2012, the Central Organisation of Finnish Trade Unions (SAK), the country’s biggest trade union confederation, agreed to discuss raising the retirement age with the country’s other social partners. The partners’ common target is to raise the average pension age to 62.4 years by 2025. (FI1203011I)

1.2 Have all or some of the challenges mentioned below had an impact on the debate and/or on the development of pension reforms?

Debate about pension reform

Challenges

Important impact

Some impact

No impact

Public Budget restrictions arising from the crisis
Demographic ageing
Ageing workforce
Low employment rates
Other (please specify below)
Pension reform

Challenges

Important impact

Some impact

No impact

Public Budget restrictions / financial crisis
Demographic ageing
Ageing workforce
Low employment rates
Other (please specify below)

1.3 Are job quality aspects considered in the framework of the sustainability and reforms of the pension system in your country?

☐No

X Yes

The Finnish Development Strategy of Working Life was published in May 2012. The strategy aims to improve the employment rate, the quality of working life, well-being at work and work productivity. By improving the quality of working life, it is possible to foster people’s will and motivation to prolong their working careers. The government, together with the social partners and other relevant actors, will launch a broad national co-operation project in workplaces to implement the strategy. As part of this project, Tekes (Finnish funding agency for technology and innovation) will prepare a separate development programme for work organisations.

1.4 How are the three pillars of the pension system represented in your country?

Importance of the different pillars within the pension system

Pillars of the pension system

Main subsystem

Important

Exist but not very relevant

Does not exist

Public pension system
Occupational system (company or sector level)
Individual private pensions

2. The role of Social Partners in the pension system

2.1 What is the role of social partners in the pension system of your country (as a whole) and within the different pillars: public pensions, occupational pensions and private individual pensions or in other pension configurations? Has this role changed since 2008?

The role of social partners in the Finnish pension system has not changed since 2008. Social partners have pretty much created the state pension system and typically play an important role in the pension insurance institutions. The pension reform 2005 was also first negotiated between the social partners.

Finnish pension provision consists mainly of the employment-based earnings-related pension and the residence-based national pension, which provides minimum security. These make up first-pillar pension provision. Second-pillar employer-specific pension provision or pension provision based on labour market agreements and third-pillar pension provision based on private insurance are rare in Finland compared to many other European countries.

Earnings-related pension provision is based on law, but the principles are mainly agreed on in negotiations between the labour market organisations.

2.2 Please complete the table below to indicate who has prime responsibility for planning and design of public pensions and occupational pensions, and who is responsible for implementation, highlighting the respective role of different stakeholders.

Outline of main responsibilities in pension systems (public and occupational schemes)
 

Public pensions

Occupational schemes

Main responsibility for design – set the framework or legislate -

X Government (national)

☐Government (regional)

X Social partners

☐Private sector institution (please specify)

☐Other body (please specify name and make up)

☐Government (national)

☐Government (regional)

☐ Social partners

☐Private sector institution (please specify)

X Other body (please specify name and make up): private companies

Main responsibility for implementation

X Government (national)

☐Government (regional)

X Social partners

☐Private sector institution (please specify)

☐Other body (please specify name and make up)

☐Government (national)

☐Government (regional)

☐Social partners

☐Private sector institution (please specify)

X Other body (please specify name and make up): private companies

Stakeholders consulted on a regular basis or when important aspects are discussed

X Employers’ organisations (cross-sectoral)

☐Employers’ organisations (sectoral)

X Trade unions (cross-sectoral)

☐Trade unions (sectoral)

X Pension institutions (i.e quasi-public bodies)

☐NGOs

☐Other bodies (please specify name and make up)

☐Employers’ organisations (cross-sectoral)

☐Employers’ organisations (sectoral)

☐Trade unions (cross-sectoral)

☐Trade unions (sectoral)

☐Pension institutions (i.e. quasi-public bodies)

☐NGOs

☐Other bodies (please specify name and make up

Outline of main responsibilities in pension systems (public and occupational schemes)
Level of influence of social partners

X There is a legal obligation to consult social partners for any reform

☐Social partners are consulted and have a right of veto (formal)

☐Social partners are consulted but do not a right of veto (formal)

☐There is a legal obligation to consult social partners for any reform

☐Social partners are consulted and have a right of veto (formal)

☐Social partners are consulted but do not a right of veto (formal)

Forum for and level of dialogue

☐Consultation takes place in ad-hoc tripartite groups

X Consultation takes place in permanent tripartite structures

☐Other forum for consultation (please specify)

☐Dialogue takes place at the national intersectoral level

☐Dialogue takes place at the national sectoral level

☐Dialogue takes place at another level (please specify)

☐Consultation takes place in ad-hoc tripartite groups

☐Consultation takes place in permanent tripartite structures

☐Other forum for consultation (please specify)

☐Dialogue takes place at the national intersectoral level

☐Dialogue takes place at the national sectoral level

☐Dialogue takes place at another level (please specify)

  • In case there is a statutory funded occupational scheme in your country, please provide more details on the main responsibility for design and implementation, stakeholders consulted, level of influence of social partners and forum and level of dialogue
  • In case there is a mandatory private individual scheme in your country, please provide more details on the main responsibility for design and implementation.
  • In case there is a configuration of the pension sub-system different from public, occupational, statutory funded occupational, private and mandatory private, please provide more details on the main responsibility for design and implementation

3. Involvement of social partners in pension reforms

In general, the compulsory earnings-related pension for private-sector workers is a partially-funded and privately-organised defined-benefit system. The details of the system are set out in law, based on negotiation between the social partners.

3.1. Since 2008 has there been relevant pension reform/s in your country?

The last relevant and notable major pension reform took place in 2005. However, there have been some smaller reforms or changes in the Finnish pension system. The minimum age for a part-time pension was raised from 58 to 60 in 2011. Old-age pension rights accumulated during part-time retirement were simultaneously reduced, but were made to relate more closely to actual earnings. The reforms apply to persons born in 1953 or later. Their main objective is to improve the sustainability of the pension scheme; they were based on an agreement between the social partners.

☐Yes

3.2 In general, what are the main elements that have been addressed in the recent reforms of the pension system in your country?

These elements are related to 2005 pension reform:

  • Changes to pillar structure of the overall pension framework and/or development of
  • retirement savings ☐Yes
  • Change in the statutory retirement age (eligibility): X Yes
  • Restrict access to early retirement (eligibility): ☐Yes
  • Equalise statutory retirement age between men and women (eligibility): ☐Yes
  • Linkage between pension age and life expectancy gains: X Yes
  • Increase of number of contribution years required (eligibility): ☐Yes
  • Linkage between benefit levels and financial balance of the pension scheme: ☐Yes
  • Promotion of higher pension by working longer (adequacy): X Yes
  • Change in the indexation system: ☐Yes
  • Changes in the groups of workers covered (coverage): ☐Yes
  • Others (not listed) related to adequacy of income for pensioner life, eligibility conditions and coverage of groups of workers and population (please state)………………………………………………………………… ☐Yes

3.3 Overall, according to the various sources of information (journals, articles, scientific publications, social partners reports, government reports), how important has been the involvement and role of social partners in the recent pension system reform/s?

  • X Overall, the involvement of social partners has been very important and their role essential
  • ☐ Overall, social partners are involved to some extent and they have influenced the reform/s
  • ☐ Overall, social partners have had little or no involvement and their role is not important or none

3.4 More in detail, what has been the involvement of the social partners in the recent pension system reforms? For each of the most relevant pension reforms (max. three) adopted since 2008 (or currently being discussed) develop on the following aspects:

Scope of the reform

  • Name and date of adoption of the reform
  • Scope: whole pension system, public pension system, occupational, etc..
  • What was the main purpose of the reform, the scope (e.g. one or several pillars), the target group (e.g. all employees, public sector employees, workers exposed to strenuous work, etc.) the objectives (increasing sustainability or adequacy) and what were the changes introduced. Add other elements listed in question 3.2 if they are part of the reform.

In April 2012, the social partners agreed on a series of measures supposed to save the pension system in the mid-term. Such amendments were needed as the 2005 agreement between the social partners and the government did not have the expected impact. Indeed the 2005 agreement intended to bring retirement age up to 63 and to bring effective retirement age to 62.4 by 2025 because of early retirement. However, the reform’s evaluation is only partly satisfactory. It allowed increasing the number of active seniors. Indeed, when comparing with ten years ago, the rate of working 55-64 year-olds went up by 14 %. Still, average retirement age today is still far from the target. In 2011, it was around 60.5, 0.1 % up from 2010 but way below displayed expectations.

Role of social partners

  • Please answer the multiple choice question and explain your answer bellow:

X Reforms adopted upon proposal from social partners (previous agreement between employers and trade unions)

☐ Reform elaborated through tripartite cooperation/dialogue where most of the content was agreed with social partners

☐ Reform elaborated through tripartite cooperation/dialogue where part of the content was agreed with social partners

☐ Reform adopted by the government despite views expressed by social partners

☐ Reform has been collectively agreed between the social partners through Social Dialogue

☐ Other…….(please elaborate)

  • Please elaborate on the process of elaboration of the reform and the role of the social partners at different stages and in relation to different aspects at stake, providing details of the process and level of consultation (intersectoral/sectoral) and if there are any specificities in relation to the established model of industrial relations in your country. In case the involvement of social partners was minimal, please explain why.

3.5 As a result of the involvement of social partners in the reforms included in question 3.4, what have been the main outcomes and achievements within the scope of those reforms.

  • How social partners’ involvement has contributed to affect the reforms taken and how i.e. what sort of changes were agreed and negotiated? If this impact was limited, please explain why.
  • Have social partners’ involvement lead to better “deal” for workers and / or companies? In what area or element of the pension system? (i.e. in public pensions, occupational, private or combinations, elements listed in question 3.2 (specially coverage, eligibility and adequacy), other aspects which represent an achievement for workers and/or companies).
  • Please outline most controversial issues and aspects not agreed by both or one of the sides (employers or trade unions).
  • In the case of lack of involvement, how has this affected the overall outcomes of the pension reforms

Amendments to the pension system will increase pension contributions paid by employers and employees: in 2015, contributions will increase by 0.4 points for employees and employees (i.e. a total of 0.8 %) and again in 2016. The possibility of early retirement before statutory retirement age – 63 has been removed. The age entitling to part-time retirement (such as phased-in retirement) goes from 60 up to 61. Most substantial is the extension of careers with special measures funded and organized by pension organizations and occupational health services to maintain seniors at work. Besides, an agreement signed in 2011 is going to come into force, focusing on the development of individual career plans for employees, allowing them to remain active longer.

3.6 Please explain if the involvement of social partners in recent pension reforms has changed in comparison with previous periods (before 2008, for example). If this is the case, please explain. Why their involvement has changed? What have been the consequences of the change for the reform and its outcomes?

4. Social partners’ positions on pension reforms

The issue of how pensions should adjust to changes in life expectancy is an important agenda matter for the social partners and government. A government programme launched in 2011 makes it mandatory to reach a common understanding leading to a long-term solution to extend careers, ensure the funding of the earnings-related pension scheme, and ensure sufficient pension provision.

The social partners concluded an agreement on extending working careers in March 2012, which the government is committed to implementing. The agreement focuses on the first and middle as well as final stages of careers. The social partners have committed to continuing pension reform by carrying out a high-level survey on the earnings-related pension scheme by 2013. The pension reform will enter into force no later than January 2017. The social partners also agreed to increase opportunities for on-the-job training and apprenticeships for young people. Special attention will be paid to combating the causes of incapacity for work and developing professional skills throughout careers.

4.1 What are the views of trade unions and employers’ representatives on different elements of pension reforms?

4.1.1 In general, what are the views on the whole on recent reforms of the pension system? What do they think about the changes that have taken place? In their opinion, what are the elements that should have been changed and have not changed yet?

There is a wide consensus in Finland that the pension reform 2005 has been a successful reform. Furthermore, there is also a consensus that the employment rate should be raised, and the lengthening of career in working life is common target shared by employers and trade union side. However, the Confederation of Finnish Industry (EK) predicts that pension benefits will have to be cut in the coming years.

4.1.2 On the public (state) pensions, what are the views of social partners on the reform of the following aspects and why?

  • Views on public budge sustainability, changes to statutory pension age and contributions record
  • Views on eligibility (closing pathways to early exit)
  • Views on coverage of the various groups of workers
  • Adequacy income for living standards ( including views on replacement rates, views on role of minimum guarantee pensions vs. earning-related pensions)
  • Views on changes to incentives to continue working
  • Views on changes to indexation
  • Other main aspects of social partner positions

The Confederation of Finnish Industries (EK) has called for the abolition of the so-called unemployment tunnel, which allows for a smooth transition to retirement for older unemployed persons. However, the trade union side wants to keep the existing system. Employers and trade union representatives failed to bridge the gap on increasing the statutory age of retirement by three years. The unions have rejected any increase, while the employers want people to retire later than the current average retirement age of 63 years.

Employers have also expressed a goal to remove income-related unemployment benefit for people made redundant at the age of 58 years or over. As noted, this benefit has enabled employees to take a form of early retirement before reaching the statutory retirement age and eligibility for a full pension at the age of 63 years.

In 2012, the average work pension contribution was 22.8 per cent of total pay. The pressures for an increase are heavy. In the most recent ETK (Eläketurvakeskus) calculations, it was estimated that the pension payment would increase to 27 per cent by 2025.

4.1.3 On the occupational schemes, what are the views of social partners on the reform of the following aspects and why?

  • Views on changes to the overall pension framework and the role of occupational schemes in comparison with public pension schemes.
  • Vies on funded statutory old-age pension schemes (when relevant)
  • Views on shift from defined benefits to defined contributions
  • Other main aspects of social partner positions

There are very few industry-wide supplementary pension schemes based on labour market agreements. Supplementary pension provision can be arranged with a life insurance company, a company pension fund or an industry-wide pension fund.

4.1.4 On the private schemes, what are the views of social partners on the reform of the following aspects and why?

  • Views on changes to pillar structure of the overall pension framework and the role of private individual schemes as mandatory/voluntary
  • Views on shift from defined benefits to defined contributions
  • Views on State guarantees for private schemes
  • Other main aspects of social partner positions

4.1.5 According to the opinion of the social partners which of these objectives has been or will be achieved through the pension reforms?

  • Better financial and public budget sustainability
  • Extension of coverage to groups of workers
  • Achievement of adequate income and living standards
  • Reduction of dependency ratios in the labour market
  • More social protection for older workers at work and/or receiving pensions
  • Active ageing through combination of partial work and partial retirement

4.2 Please explain, if relevant, whether views diverge among trade unions and among employers’ representatives and if views have changed over time.

With regard to the changes of views over time, the reference period should be after 2000, with especial attention to what has happened after 2008.

4.3 What are the most consensual issues and least consensual issues for social partners concerning pension reforms?

With regard to the changes over time, the reference period should be after 2000, with especial attention to what has happened after 2008.

Finnish social partners have a relatively high degree of unanimity on views concerning public budge sustainability, adequacy income for living standards and a need of incentives to continue working. The most notable dispute has related to the need of the raise of minimum retirement age. Employers’ EK and the governments have expressed that the current minimum retirement age should be raised from 63 to 65 years of age. Trade union side has been arguing that there is no need to raise the minimum age of retirement.

4.4 Please explain if topics such as labour market policies for older workers and working conditions are highlighted by social partners as an important factor in their views on pension reforms.

Labour market unions have been quite unanimous that raising the employment rate, making work places more attractive to aging employees and bringing to an end discrimination against older employees in the labour market are the essential means to raise the real age of retirement.

5. Commentary

In order to get a fresh international view of the Finnish pension system, the Finnish Centre for Pensions decided in 2011 to commission an independent evaluation study of the Finnish pension scheme. Thus, two international and independent evaluation-reports of the Finnish pension system have been completed in January 2013. The evaluation was commissioned by the Finnish Centre for Pensions and conducted by international experts Professor Keith Ambachtsheer and Professor Nicholas Barr. The focus of the evaluation is on the structure of pension security, the sufficiency and sustainability of pensions, and the management and cost-efficiency of the Finnish earnings-related pension system.

The experts found the Finnish pension system comprehensive and sustainable. However, both evaluators also found weaknesses in the Finnish system. Professor Barr recommends that Finland raise the minimum retirement age to reflect longer life spans by setting a lowest possible retirement age for each age group. According to Barr, the current incentives are enough to make people retire later. Barr nevertheless maintains that changes can now be made at a leisurely pace, because the Finnish pension system is not in a crisis.

According to Professor Ambachtsheer, the funding for pensions should be re-evaluated. Approximately 75 per cent of revenue from pension contributions is currently used to pay pensions while 25 per cent is placed in a fund for future pensions. Ambachtsheer would raise the percentage of revenue placed in the fund. From the perspective of diversification, on the other hand, the percentage of international investments should be increased. In his evaluation Ambachtsheer also draws attention to the administrative costs of the Finnish pension providers in charge of earnings-related pensions. Those could in his opinion be reduced by forming larger pension insurance companies and by stronger cooperation between the companies.

6. Sources

/ef/observatories/eurwork/articles/pension-reform-seeks-to-encourage-longer-careers

/ef/observatories/eurwork/articles/widespread-opposition-to-government-plan-to-raise-retirement-age

/ef/observatories/eurwork/articles/undefined-industrial-relations/two-tripartite-working-groups-draft-retirement-reforms

/ef/observatories/eurwork/articles/industrial-relations/retirement-on-the-agenda-again

http://www.etk.fi/en/service/the_pension_system/1399/the_pension_system

http://www.etk.fi/en/service/pension_as_social_security/1422/pension_as_social_security

Ambachtsheer, Keith: The pension system in Finland: Institutional structure and governance. Evaluation of the Finnish Pension System, Part 2. Finnish Centre for Pensions, Helsinki 2013.

Barr, Nicholas: The pension system in Finland: Adequacy, sustainability and system design. Evaluation of the Finnish Pension System, Part 1. Finnish Centre for Pensions, Helsinki 2013.

Pertti Jokivuori, University of Jyväskylä

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