Finland changes over to flexible retirement age

Reforming social security through tripartite negotiations

The major Finnish labour market organizations agreed upon a so-called social package. As a result of this package, the retirement age in private sector will become flexible. Employees may retire already at the age of 62 or continue to work until they reach the age of 68, and then receive a slightly higher pension. The package also brings changes to early retirement schemes and makes it easier for the unemployed to return under the earnings-related unemployment system.

Negotiations on the social package have been going on all autumn, and two tripartite working groups-consisting of representatives of the social partners and the Government-are about to complete their work at the same time. The reading of necessary law reforms in the Parliament, planned for next year, will require a certain amount of time, and it was for this reason that the negotiations had to be completed by this date.

Mr Lauri Ihalainen, President of SAK, suggested at the SAK Executive meeting on Monday that wrapping the issues concerned into one package proved to be a good negotiation strategy.

- This way the unions did not have to fight at several fronts simultaneously, said the SAK Chairman, pleased with the result.

Calculation formula of pensionable earnings a stumbling block

The calculation formula of pensionable earnings was the one issue causing most disputes. It was agreed in the negotiations that in calculating the pensionable earnings, the entire period of employment is taken into account. This new model will be introduced in 2005. Until then, the present model will be applied. According to this, the pension is calculated on the basis of the earnings during the last ten years of employment.

Until 2010, either model can be used in determining the pension of an employee. The intention is that the model giving the employee a better pension will be chosen. Only one model will be applied from the beginning of 2011, the latest, but no agreement on what this model will be was reached in the present negotiations. New negotiations on this issue will be opened as soon as the negotiating parties deem it possible. In the present negotiations, also the trade union centres failed to agree on the matter; SAK stood for calculating the pension on the basis of the entire period of employment, STTK and AKAVA on the basis of the last ten years of employment.

Early retirement pension scheme and unemployment security

Changing over to flexible age-limit in old-age pensions will also bring changes to early retirement pension scheme. Individual early retirement pension scheme will be enforced till the end of 2003, and from the beginning of 2004 conditions of disability pension will be loosened. In order to secure the position of the baby boom" generations, the system allowing people to retire directly after a certain period of unemployment, the so- called pension tube", will be maintained until the end of 2014. This system covers employees born in 1949 or before. The livelihood of the unemployed employees born after 1949 will be secured with a new system which will also improve the position of young employees as it will offer new choices and take better into account the changes taking place in employment relationships. In the field of unemployment security, returning of an unemployed person under the earnings-related unemployment benefit system will be made easier. The employment condition" will be shortened from 10 months to 8. Also conditions for adjusted unemployment allowance" (for employees who are not fully employed) will be changed in order to make it easier for people to take on temporary work.

The social package also includes a Government Statement on promoting employment and on related measures.

Memorandum of the working group on unemployment security 2001

Additional information available from

Pertti Parmanne, Director, tel. +358-9-7721 310, e-mail: pertti.parmanne@sak.fi

Janne Metsämäki, Legal Advisor, tel. +358-9-7721 437, e-mail: janne.metsamaki@sak.fi

Kaija Kallinen, Social Secretary, tel. +358-9-7721 444, e-mail: kaija.kallinen@sak.fi