The Finnish retirement income system scored 77.2 on the 2022 Mercer CFA Institute Global Pension Index, and B+ grade in overall index value after evaluating the retirement income system’s adequacy, sustainability, and integrity. The Finnish retirement income system comprises a basic pension at the national level, earnings-related pensions at the occupational level, and private products at the individual level.
National Level
At the national level, Finland has a universal pay-as-you-go system with two types of pension schemes to ensure a “basic livelihood.” The national pension and guaranteed pension ensure that individuals who have either no or a very small amount of savings still receive a consistent pension. The full monthly national pension in 2021 for a single person is EUR 665.29, and, for a married or cohabiting person, it is EUR 593.97. The amount of national pension one receives depends on the amount of earnings-related pension one has accrued – for each euro of earnings-related pension accrued, the national pension is reduced by 50 cents until no national pension is granted. Full benefits are payable to those residing in the country 80% of the period from age 16 to 64) and is prorated for those with at least three years of residency.
The guaranteed pension ensures the economic welfare of low-income pensioners. If the pension recipient’s total national and earnings-related pensions amount to less than the lower pension income level stipulated by law, the difference is paid in the form of a guaranteed pension. In 2021, The minimum pension income limit is EUR 837.59 per month.
Occupational Level
The earnings-related pensions are a partially funded system that is compulsory for all workers (referred to by its acronym TyEL). The employees’ contribution in 2021 will be 7.15% of their monthly gross wage for persons under the age of 53 or over 62. For persons between the ages of 53 and 62, the contribution rate will be 8.65%. The average contribution for employers will be 16.95%. There are no caps on how much an individual may contribute. The retirement age ranges from 63 to 68. The lower age will reach 65 by 2027, and then be based on life expectancy starting in 2030. The upper age will reach 70 by 2027, and be based on life expectancy starting in 2030. For people born after 1965, the retirement age will be determined by life expectancy as of the year 2030 and life expectancy is determined separately for each age group.
According to new reforms introduced in 2017, while everyone will earn pensions at a rate of 1.5% of their gross annual earnings, the pension funds that one has accrued will rise by 0.4% for each month that an employee defers retirement. The benefits are indexed. They are tax-exempt as well, if this happens to be the sole source of income for an individual.
Also, one can now retire as early as age 61 on a partial old-age pension and draw 25% or 50% of the pension that has accrued up to that time. However, the part drawn out would be permanently reduced by 0.4% for each month, beginning from when the individual starts drawing out the pension through the month after which reaching retirement age. In addition, a new years-of-service pension has been introduced for people aged 63 or older and having 38 years or longer history of work that required great mental or physical effort.
On January 1, 2019, Finland introduced an electronic national income register to centralize data on pay, pensions, and benefits. The register will eliminate the need for employers to make annual declarations to the authorities responsible for tax, social security, and unemployment insurance, while pension companies will use the reported monthly salaries to calculate statutory pension contributions and payments.
Individual Level
Lastly, private voluntary savings opportunities are available. These include many different accounts and savings products that have differing taxation and benefit characteristics, including voluntary occupational plans, which accrue at the same rates as earnings-related programs by the state.
Summary Sources
Activpayroll. “Preparing for Finland’s National Incomes Register.” December 4, 2018. Accessed 03/26/2020.
Finnish Centre for Pensions. Accessed 03/26/2020.
Finnish Centre for Pensions. “Earnings-related pension contributions in 2020” Accessed 03/26/2020.
Finnish Centre for Pensions. “System Description.” Accessed 06/24/2021.
Finnish Centre for Pensions. “Statutory social insurance contributions in Finland in 2021.” Accessed 06/24/2021.
InfoFinland. “The Finnish pension system” Accessed 03/26/2020.
Kela. “Guarantee pension.” Updated January 1, 2019. Accessed 03/26/2020
Moss, Gail. “Regulation Roundup: Pension outlook in Europe.” Investment & Pensions Europe. March 2017. Accessed 03/26/2020.
Social Security Administration. “Social Security Programs Throughout the World: Europe, 2018 (Finland).” September 2018. Accessed 03/26/2020.
Tyoelake.fi. “Different pensions” Accessed 03/26/2020.
Tyoelake.fi. “New in Finland” Accessed 03/26/2020.
Current Issues
In March 2020, the Finnish government passed a EUR 15 billion package to support workers and corporations during the COVID-19 pandemic. This package included a temporary measure to reduce the private sector’s pension contributions by 2.6% – in effect from June 2020 – December 2020. The government also ordered the State Pension Fund (VER) to invest EUR 0.5-1 billion into commercial papers to increase and support short-term liquidity and facilitate easier re-borrowing of pension contributions. Some measures taken by private employment pension companies also included allowing companies to apply for an extension to their payment term – up to 3 months – for employee pension payments with 2% interest (TyEL and YEL) (Requiring final approval from the government). Other measures may include using an EMU-buffer to potentially decrease employee pension contributions.
Summary Sources
“Finland Government and Institution Measures in Response to COVID-19.” KPMG. Last updated November 18, 2020. Accessed 06/24/2021.
“Policy Responses to COVID-19.” International Monetary Fund. Last updated June 10, 2021. Accessed 06/22/2021.
Source: Georgetown University’s Center for Retirement Initiatives
Last Updated 3/28/22