A pensioner held an envelope in Vantaa in October 2021. Both YLE and Helsingin Sanomat have reported that current pensioners have paid for only some of their pensions during their careers. Pensioners born in 1950, for example, are receiving over 5.2 euros for every euro they paid in pension contributions, according to the newspaper. (Emmi Korhonen – Lehtikuva)
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PENSIONERS in Finland have only paid for some of their pensions, reveal calculations made for Helsingin Sanomat by the Finnish Centre for Pensions (ETK).
For example, pensioners born in 1940 are receiving an average of 5.22 euros and pensioners born in 1950 an average of 3.15 euros for every euro they paid in pension contributions during their career, the newspaper reported last Wednesday.
The ratio decreases to around two euros for every euro for people born in or after the 1960s.
ETK also made another calculation to take into consideration the average nominal return of pension funds based on the assumption that, in the absence of a pension system, people would have invested a sum equivalent to their pension contributions with a real return of 3.5 per cent.
“Based on the calculation, the pension contributions made by current pensioners wouldn’t be enough to fully cover their pensions even if all the contributions had been put in funds. Current pensioners therefore have only paid for some of their pensions,” Heikki Tikanmäki, a development manager at ETK, stated to Helsingin Sanomat.
Finns who are presently in working life would contrastively benefit from the opportunity to invest their pension contributions with a real return of 3.5 per cent.
The inter-generational differences arise largely from the fact that pension contributions have increased since the earnings-related pension system was created in the early 1960s. The contributions remained low for the first few decades due to the low number of people who had earned an earnings-related pension.
Only about a fifth of current pension payments are funded with the pension contributions of current pensioners, Suvi-Anne Siimes, the chief executive of the Finnish Pension Alliance (Tela), and Mikko Kautto, the chief executive of ETK, confirmed to YLE on Friday.
The average pension of newly retired pensioners is currently roughly 2,000 euros a month, according to the public broadcasting company. About 400 euros of it is paid for by past pension contributions and the rest by contributions collected from employees, employers and business owners.
Also the central administration and unemployment funds contribute to funding pensions.
Kautto revealed that 24.4 per cent of total wages in the private sector are presently used to fund pensions, with the share rising even higher in the public sector. The share used to be significantly lower: pension contributions accounted for about 5 per cent of wages in the 1960s, 10 per cent in the 1970s and 15 per cent in the 1980s.
“A central reason for the rise in pension contributions is the shrinking of age groups in Finland. A smaller and smaller group of people is funding the pensions of earlier generations,” said Siimes.
Pensions in Finland are presently rising faster than wages because they are adjusted annually according to an index that is made up 80 per cent of inflation and 20 per cent of overall wage growth.
Pensions have become a topic of discussion in the country recently because the government has insisted on not adjusting them while making notable cuts in, for example, housing, student and unemployment benefits.
Atte Harjanne, the chairperson of the Green Parliamentary Group, proposed last month that the tax rate on pensions be raised to the effect of reducing the index-based increase to be implemented in pensions at the turn of the year from 5.7 to 4.7 per cent in order to promote intergenerational equality.
The proposal, which would not have affected the lowest pensions, received virtually no support from other political parties.
Minister of Social Security Sanni Grahn-Laasonen (NCP) indicated that she is puzzled by the position, reiterating that the government has chosen to target its cost-cutting measures at people who have the opportunity to find employment to improve their position. Minister of Finance Riikka Purra (PS), meanwhile, rejected the idea by arguing that people on low earnings-related pensions are not benefiting from their long careers compared to people on public and guarantee pensions.
Also Siimes expressed her opposition to the proposal during her interview on YLE Ykkösaamu.
“The index protection is very important for pensioners. Preserving the purchasing power of pensions is key for the earnings-related pension system. We’re now having two years of nominally high pension increases, but at the same time the total wage sum has increased and pension income has increased pretty nicely, meaning the system can withstand this,” she argued.
Aleksi Teivainen – HT
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Source: www.helsinkitimes.fi
