Finnish social partners negotiate new pension scheme

The Finnish employee and employer federations, together with the representatives of the pension institutions, were able to agree, after some tough negotiations, certain basic amendments to the employment pension legislation. Agreement was reached on 12th November 2001 and the Government of Prime Minister Lipponen declared its support for the solution on the following day.

The private sector pension laws were the subject of these negotiations and the amendments are intended to be generally implemented on the 1st of January, 2005. The public sector social partners will negotiate separately on the application of this solution to the employment pensions of the employees of the local authorities and of civil servants.

Retirement age to rise

This solution will change the provisions for early retirement in a variety of ways. It was decided that the personal, individual entitlement to early retirement will be discontinued, but both the length of the working life and the weight of the workload of the employee will in future be taken into account when the right of the older employee to an employment incapacity pension is being determined. The lower age limit for part-time retirement will, from January 2003, be raised to 58, and the amount of old age pension will be reduced in cases where a person has taken up part-time retirement. Income support for the older unemployed will be, to a greater extent than is the case at present, in the form of unemployment benefit rather than in the form of a pension. The current employment pension, with its lower age limit of 60, will remain unchanged for those who were born in the year 1949 or earlier.

The desired objective for these changes in the entitlement to early retirement was the raising of the age at which people may leave their employment. SAK, the Central Organisation of Finnish Trade Unions, is emphatic that improvements to the working environment, which will support the older employee and which will assist in the prevention of work related fatigue, would be the most sustainable and humane solution for the raising of the average retirement age.

Flexible retirement age

In future, both men and women in Finland will be able to choose their own date of retirement within the age range of 62 to 68. Retirement at the age of 62 will lead to a permanent reduction, although by no more than 7.2 per cent, in the old age pension. If an individual is able to continue in employment until the age of 63, the entitlement to the full employment pension which has been earned to that date, will remain. The rate of pension accumulation, which is earned from employment between the ages of 63 and 68, will rise to 4.5 per cent per annum, against the standard figure of 1.5 per cent. The current amendments to pension legislation mean that the level of employment pension may exceed the present limit of 60 per cent of salary.

A flexible age for retirement will be the future solution, because very few of those who have carried out heavy work from their youth are currently able to continue working until the present retirement age of 65. Developments in the working environment, and the degree of health and safety provisions at work, will be the decisive factors upon which will depend whether or not the production worker of the future will be able to continue working until the retirement age as is determined by the new flexible scheme.

Pension to start accumulating early

In the future, the old age pension will start to accumulate from the age of 18, and the obligation to pay pension contributions will commence at the same age. Under the present regulations, any employment before the age of 23 does not count towards a pension entitlement, despite the fact that even school children are required to pay pension contributions if they take a summer job.

Average pay model to be applied to pension calculations

In the calculation of the employment pension, the principle of the average wage over the entire working life of an individual will be applied from 1st January 2005. Pension payments are currently calculated on a basis which tends to discriminate against those who frequently change jobs. A fair employment pension, which will not be affected by the number of jobs which have been held nor by the pattern or timing of pay rises, is the objective of this employment pension model of the future.

In the implementation of this amendment to the pension calculation method, all pension entitlements which have been earned prior to 1st January 2005 will remain subject to the law as it now stands. Those who take up employment for the first time in the year 2005, will receive a pension which has been calculated entirely on the basis of the new method of calculation.

Another objective is to improve the index which is used when pensions are determined, so that the index more closely reflects the general growth of earnings than is currently the case.

Clarification of the impact of gender on the level of pension

The basis for the calculation of the percentage of pension growth during employment incapacity pension entitlement, from the time of incapacity to the commencement of entitlement to the old age pension, was not concluded in these negotiations due to the lack of available time. The method of calculation, and the definition of the salary on which the pension in these cases would depend, remains open for the time being.

Periods of no earnings in an individual's working life constitute another issue which requires further clarification. The aim is to consider whether there are periods of no earnings other than sick leave, parenting leave and periods of unemployment which should legally entitle the individual to pension growth.

It is stated in this pension agreement that the impact of the proposed amendments on the pensions, both of men and women, will be monitored during the legislative process, in order to ensure that no injustice will arise. In the opinion of SAK it will be extremely important that both of these issues are carefully studied during the further legislative stages.

kaija.kallinen@sak.fi
SAK info magazine 4/2001