Finland

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 2nd and 3rd pillar schemes in 2016. At the same time the overall old-age pension benefit paid to pensioners was on average 56 % of the average income of the employed population. (ETK, pension indicators, p.27).

  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. Five of them are
  • the Employees’ Pensions Act (TyEL)
  • the Public Sector Pensions Act (JuEL)
  • 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, and recipients of earnings-related social security benefits, between the age of 18 and 68, with a monthly minimum income of EUR 58,51 (2018).

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).

In the beginning of 2017 a pension reform came into effect. Some of the following changes are included in the pension reform:

  • The age at which pension funds begin to accrue has been lowered to 17.
  • The earliest eligibility age for the old-age pension shall be raised ,as of 1 January 2018, by 3 months per birth year cohort until the earliest eligibility age for the old-age pension is 65 years. This will be your general retirement age.
  • As of 2030, the retirement age will be linked to life expectancy.
  • For each age an higher targeted retirement age will be determined, if you will reach this target retirement age, the impact of your life expectancy coefficient will be lower than when you retire at the earliest eligibility age.
As a part of the 2017 pension reform, two new pension types were introduced:

1. The years-of-service pension:

  • For people who have done work that requires great mental or physical effort for at least 38 years.
  • can be applied for as of age 63.

2. The partial old-age pension

  • actuarially neutral.
  • replaces the part-time pension.
For more details: https://www.etk.fi/en/
Financing: Financed both on a pay-as-you-go and partially funded basis, around 80% of the liabilities are pay-as-you-you financed and another 20% are funded . The earning related- contributions are paid by employer and employee. The average contribution percentage in 2018 is 24.4 % of salary. Thereof, the employee pays a contribution of 6.35 % (under 53 years and over-63-year-olds) or 7.85 % (ages 53-62).

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 17–52 and over-63-year-olds.
  • 1.7% between the ages of 53 and 62 and (between the transition period from 2017 till 2025, after that the pension accrual rate will be standardized to 1,5% of the gross wage).
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 2018, the pension income limit for the guarantee pension was EUR 775,27 per month. Other pensions from Finland or abroad affect the guarantee pension.
Coverage rate: In 2016 every fourth recipient of a private-sector earnings-related pension received an occupational pension. However, the occupational pension level considered in Euros is rather low. https://www.etk.fi/en/
Mandatory/ voluntary: Voluntary
Group insurance or individual insurance
Tax incentives Employee contributions are subject to tax deductions up to a certain limit.
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.