Varma - Annual Report 2012

Earnings-related pension system

A reliable pension system is built on sufficient pension benefits and sustainable financing. The significance of the earnings-related pension system is highlighted when assessing how to close the sustainability gap in public finances for the long term. Earnings-related pension funds and their returns as well as the length of careers are decisive factors in terms of seeking ways to meet the challenges the economy faces as a result of the ageing of the population. In March of 2012, the labour market organisations concluded an agreement on the extension of careers, according to which the Government proposed in August changes to part-time pensions and early old-age pensions. These amendments are expected to raise the projected retirement age by 0.1 years. The legislative amendments entered into force at the start of 2013.

Every year until 2012, a pension record has been sent to those with private-sector earnings-related pension insurance. Starting this year, the pension record will only be sent out once every three years. The insured can still verify their pension accrual online every year through Varma's eServices.

As part of the 2012 career-extension agreement, the labour market organisations have committed to engage in negotiations on pension reform that will be enacted by 2017 at the latest. The agreed-on goal of the reform is to achieve a financially and socially equitable pension system. An assessment of the impacts of the 2005 pension reform and the need for additional measures was carried out in order to clarify the targets. In addition, at the request of the Finnish Centre for Pensions, two experts have carried out an international assessment of the Finnish earnings-related pension scheme.

The Ministry of Social Affairs and Health is moving forward with preparations for changes in earnings-related pension legislation intended to promote competition as part of a tripartite set-up in accordance with the Government Programme. At the end of September, an agreement was reached in the tripartite negotiations concerning the implementation of the company-specific expense loading and its conditions.  The company-specific expense loading encourages individual earnings-related pension companies to boost the efficiency of their activities and increase competition. Negotiations on regulating the well-being-at-work services offered by earnings-related pension companies continued during the year. The reform of administrative regulations concerning earnings-related pension institutions is also under preparation. The Ministry of Social Affairs and Health has set up a working group to develop an insurance physician system. These development projects did not result in new legislation in 2012.

The development of the private sector pension insurance system's solvency regulations continued under the auspices of the Ministry of Social Affairs and Health. A new law came into effect in January 2013 which will bolster the risk-bearing capacity of private sector pension institutions by combining the solvency margin and the equalisation provision to form solvency capital. Additionally, the calculation of the solvency limit will be adjusted and will take into consideration both the investment risk and the insurance risk. The new law will enable nearly the same risk level on the investment activities of earnings-related pension institutions, and thus also the same return opportunities, as the temporary regulation that was laid down in connection with the 2008 financial market crisis and which expired at the end of 2012. The work to develop solvency regulations continues.


In 2012, the average TyEL contribution was 22.8 (22.4) per cent of the salaries and wages. Employees below the age of 53 contributed 5.15 (4.7) per cent of their pay, while the rate for employees aged 53 and over was 6.50 (6.0) per cent. The YEL contribution was 22.50 (21.6) per cent of the confirmed earnings for those below the age of 53, and 23.85 (22.9) per cent for those aged 53 and over. Earnings-related pension contributions will increase in a frontloaded manner between 2012 and 2016 by a total of 2.0 percentage points to 24.4 per cent. The increase is divided equally between employer and employee. In 2013, the average contribution will be lowered by 0.4 percentage points in order to clear the accumulated equalisation provision.

The return requirement on technical provisions consisted of a 3.0 (3.0) per cent fund rate, a pension liability supplementary factor and the return on equity component. The value of the supplementary factor was 0.34 per cent on average in 2012. The return on equity component in 2012 was 15.10 per cent. The technical interest rate, used to determine the interest rate of the oldest premium loans, insurance contributions and other items, was 3.25 per cent until the end of June, and 4.0 thereafter.