The Pension Landscape Finland


   

The statutory pension system in Finland is the most important part of the Finnish Pension Landscape. It has three components: the employment-based earnings-related pension, the residence-based national pension and a guarantee pension. The earnings-related pension is exclusively managed by private institutions and neither has a ceiling on contributions nor on benefits. Supplementary occupational or private pension schemes are not of great importance. Since the statutory pension secures a reasonable income during retirement, only 6 % of the total pension expenditure was paid from occupational and private pension schemes in 2014. The pension replacement rate of persons who retired on earnings related pension in 2014 was 66 percent on average for wage earners and the self-employed. Although one has to note that the replacement rate varies greatly. (ETK, pension indicators, p.27).
 

Statutory Pension

The statutory pension security in Finland consists of defined-benefit earnings-related pension, residence-based national pension and guarantee pension.
 
  Earnings-related
pension:
The pension is managed by private institutions. The Finnish Centre for Pensions serves as the joint statutory cooperation body of the earnings-related pension field.

Finland has seven earnings-related pension acts that regulate the conditions of the earnings-related pension. Four of them are
  • the Employees’ Pensions Act (TyEL)
  • the State Employees’ Pensions Act (VaEL)
  • the Self-employed Persons’ Pensions Act (YEL)
  • the Farmers’ Pensions Act (MYEL) which covers also grant and scholarship holders.
The insurance is obligatory for all employees, self-employed persons and recipients of earning related social security benefits, between the age of 18 and 68 with a monthly minimum income of EUR 57.10 (2015)

The most common earnings-related pension act chosen by employers is the Employees’ Pensions Act (TyEL).

The following information refers only to the Employees’ Pensions Act (TyEL).
 
  Financing: Financed both on a pay-as-you-go and partially funded basis, around 75% of the liabilities are pay-as-you-you financed and another 25% are funded. The earning related- contributions are paid by employer and employee. The average contribution percentage in 2015 is 24.0% of salary. Thereof the employee pays a contribution of 5.70 % (ages 18-52) or 7.20 % (ages 53-67).

There is no assessment ceiling on contributions.
 
  Old-age benefits: The earnings-related pension has no qualifying period.
There is no fixed retirement age but a general, flexible retirement age of 63 to 68 years of age. It is also possible to postpone retirement beyond the age of 68 which increases the pension slightly.

Calculation
The formula for the pension calculation is:

Pension for one year = earnings x accrual rate x life expectancy coefficient

The pension is determined separately for each year. It is calculated from the adjusted earnings for each year at an age-determined accrual rate.

The accrual rates are as follows:
  • 1.5% between the ages of 18 and 52,
  • 1.9% between the ages of 53 and 62 and
  • 4.5% between the ages of 63 and 68.
The accrued pension amount is multiplied by a life expectancy coefficient which adjusts the old-age pension amount to the changes in life expectancy. The coefficient is defined separately for each age group from the age of 62.
 
  National Pension: The residence-based national pension is managed by the Social Insurance Institution Kela.

The national pension provides a minimum flat-rate basic pension for persons without or with only a low earnings-related pension.

Legal conditions:
The national pension may be granted to a person residing in Finland permanently and has lived there for at least three years after reaching the age of 16. The minimum retirement age is 65.

The national pension is financed by tax revenues.
 
  Guarantee Pension: The guarantee pension ensures a minimum security to low income pensioners. In 2015, the pension income limit for the guarantee pension was EUR 746.57 per month. Other pensions from Finland or abroad affect the guarantee pension.

Occupational Pension

Coverage
rate:
In 2013 every fourth recipient of a private-sector earnings-related pension received a supplementary occupational pension. However, the supplementary occupational pension level considered in Euros is rather low
(http://www.etk.fi/en/service/occupational_pensions/1458/occupational_pensions)
 
 
  Mandatory/
voluntary:
Voluntary
Group insurance or individual insurance
 
  Tax incentives: Employee contributions are subject to tax deductions up to a certain limit.

Private Pension Savings

Products: Individual Pension insurance taken out by the insured person, the spouse or the employer and long-term savings contract.
 
  Tax incentives: Contributions are tax deductible under certain conditions.


 
 
 
© 2017 VBL, powered by SITEFORUM

Your privacy and personal security on the internet is very important to us. No personal information/data is saved, neither do we pass on or exchange any of your information with third parties. We nevertheless, make use of cookies to increase performance and functionality. Should you continue using our website, you automatically consent to the use of cookies. For more detailed information please refer to our cookie-policy on the website. Close