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A new survey by LähiTapiola has revealed that a significant majority of Finns believe that each generation should be responsible for funding their own pensions, reflecting growing concerns about the sustainability of the current pension system amid declining birth rates.
According to the Arjen katsaus survey, 64% of respondents who expressed an opinion believe that every generation should fund their own pensions, a slight increase from the 2021 survey.
The current Finnish pension system operates on a pay-as-you-go model, where the working population funds the pensions of retirees. However, with birth rates at historic lows, many Finns are questioning the viability of this approach.
Rising Concerns Among Younger Generations
The survey highlights a significant generational divide in confidence in the statutory pension system. Among 25- to 34-year-olds, a striking 77% believe they would receive better returns by managing their own pension savings, compared to just 13% of those over 75 who share this view. This shift reflects a growing skepticism among younger Finns, who are increasingly looking towards personal investments as a more reliable means of securing their financial future.
Hannu Nummiaro, an economist at LähiTapiola, suggests that the traditional pension model may need to evolve to address these concerns. “Finns seem to favor a more fully funded pension system, which would be less vulnerable to demographic shifts,” Nummiaro explains. “If previous generations had their pension contributions invested over decades, the system would be on a more stable footing today.”
Challenges of Transitioning to a Fully Funded System
Despite the support for a shift to a fully funded pension system, Nummiaro acknowledges that such a transition would be challenging. “Current workers would have to fund both their own future pensions and the pensions of current retirees,” he notes. “A fully funded system should have been established when the pension system was first created, but at that time, the long-term demographic changes we’re seeing today were not anticipated.”
One potential solution, according to Nummiaro, could be to relax solvency regulations for pension funds, allowing them to invest more aggressively and potentially increase returns. “Currently, regulations require pension funds to keep about half of their investments in equities. Increasing this proportion could boost returns and perhaps improve public satisfaction with the statutory system,” he suggests.
Self-Managed Pension Savings on the Rise
The survey also reveals that 56% of respondents believe they could achieve better returns by managing their own pension savings rather than relying solely on the statutory system. This sentiment is particularly strong among younger adults, who are increasingly aware of the limitations of the current system and the benefits of diversifying their retirement savings.
Nummiaro advises individuals to take a proactive approach to their retirement planning. “While the statutory pension system provides a basic level of security, it’s wise not to rely on it entirely for retirement income. By starting to save and invest early, individuals can ensure a more comfortable retirement and contribute to the overall stability of the system.”
Ongoing Pension Reform Discussions
The Finnish government and labor market organizations are currently exploring ways to reform the pension system to alleviate pressure on public finances and prevent increases in pension contributions. While Nummiaro cautions that no “magic bullet” solution exists, he emphasizes the importance of addressing the root causes of the pension system’s challenges, including declining birth rates and slow economic growth.
As Finland prepares for potential changes to its pension system, the debate over how best to secure the financial future of its citizens continues. With growing support for a more individualized approach to pension savings, the landscape of retirement planning in Finland may soon see significant changes.
HT
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Source: www.helsinkitimes.fi
