What is being negotiated in the pension reform? What could it mean for employees?
The Government of Finnish Prime Minister Petteri Orpo has given the central labour market organizations the task of negotiating a pension reform which would reinforce the public finances by 0.4 per cent of GDP. This equates to circa €1 billion. In addition, the Government has asked the labour market organizations to negotiate a rules-based stabilization system aimed at stabilizing the long-term level of pension contributions.
Because the negotiations have largely been out of the public eye, we do not have a very precise idea of what is being discussed. However, it is generally considered certain that the labour market organizations are negotiating an investment reform that would strive to improve pension insurers’ yields on investment over the longer term. In practice, this would mean increasing the share of equity investments in pension insurers’ funds.
In broad terms, there are three factors in the pension system’s funding: the level of employment-related pension contributions, the level of pensions, and funds’ yields on investment. The reforms aims to make the pension system more sustainable. This would mean making the level of employment-related pension contributions predictable far into the future. The low birth rate is expected to put particular pressure on the level of employment-related pension contributions during the 2040s.
However, raising yields on investment alone might not be enough to reach the 0.4 per cent goal. In addition, the parties to the negotiations may discuss retirement benefits. For example, in its structural review the Ministry of Finance has raised the possibility of ending pension accrual for periods when workers do not receive pay.
At the moment, there is not information about how exactly a rules-based stabilization system would be implemented. The stabilization system would aim for long-term stabilization of the contribution level. Therefore, its premise would likely be that if the earnings-related pension system showed signs of a deficit in the future, the stabilizer would start working. In practice, this could mean cutting the indexation of pensions being paid and accrued.
Mikko Koskinen
Director, Communications and Public Relations
TELA, the Finnish Pension Alliance
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Photo: Karoliina Paatos