Pension reform targets longer careers
The pension reform, due to take effect in 2017, will bring about changes in both the contents and financing of pension cover. The purpose of the pension reform is to lengthen careers and to help close the sustainability gap in public finances.
More and more people will be retired for a longer period of time, while a smaller share of the population will be responsible for financing the benefits and services of a growing number of elderly people. Together with the social welfare and health care reform and the reform of local government finances, the goal of extending people’s careers serves to close the sustainability gap in public finances.
The pension reform builds on the agreement reached by the central labour market organisations in September 2014. The legislation is being prepared by the Ministry of Social Affairs and Health.
Pension reform in brief
Changes to age limits, pension accruals and pension benefits
According to the pension reform agreement, the lower age limit for old-age pension will be gradually increased to 65 as of 2017. The new pension age limits will apply to those born in 1955 or later. The upper limit for old-age pension is five years higher than the lower limit. As of 2025, the age limits for old-age pension will be linked to the increase in life expectancy, and the impact of the life expectancy coefficient will be more lenient.
The age limit for old-age pension will gradually rise
Alongside disability pension, a years-of-service pension at the age of 63 will be introduced. This pension can be applied for after 38 years of employment, provided that the work has been physically or mentally demanding and workability has diminished. The pension amount is lower than that of disability pension, as it does not include pension for projected pensionable service.
Part-time pension will be replaced by partial early old-age pension, the age limit for which is 61 years until the year 2025 and 62 years thereafter. The amount of pension will be either 25 or 50 per cent of the pension that has accrued by the start of retirement. The amount will also be reduced with a monthly reduction of 0.4% for every month of early retirement. Early old-age pension does not require working part-time.
The accrual of earnings-related pension will be changed so that pension accrues at a rate of 1.5 per cent of annual income, irrespective of age. Pension will start to accrue from the age of 17.
Pension contribution level set for the coming years
The pension agreement sets the level for the earnings-related pension contribution. In 2017–2019 the TyEL contribution will be 24.4 per cent of the total payroll. According to the Finnish Centre for Pensions’ forecasts, the contribution level is sufficient for the long term. The labour market organisations will reassess the matter no later than during the negotiations on the pension contribution for the year 2020.
Another amendment concerning the financing of pensions applies to the equity linkage of yield requirements for technical provovisions. In the future, the buffer common to all earnings-related pension institutions will carry a larger proportion of the risk caused by fluctuations in equity returns. As of 2017 the equity linked yield requirement for techinlcal provisions will be raised from the current 10 per cent to 20 per cent. This change will increase earnings-related pension insurance institutions’ possibilities to invest in equities.
Varma is thoroughly preparing for the implementation of the pension reform
Securing pensions is Varma's core task. Implementing the pension reform will be a key task for us in the coming years, and we will prepare for this by improving our competence, customer service and IT systems.
Implementing the pension reform will be a key task for us in the coming years.
As a strong expert in workability management and vocational rehabilitation, Varma will support its client companies and the insured in extending working careers. The goal of extending careers does not always necessarily coincide at workplaces and in people’s lives when the economy is suffering. The pension reform, however, aims to achieve changes in the long term.
Varma will inform its customers about the pension reform, for example, through the website and client events to be held all over Finland. In 2014 these events were attended by 1,220 HR and pay administration representatives from our client companies. Our experts also write about the effects of the pension reforms in a blog. The pension calculator on Varma’s website provides an estimate of pension cover according to the pension reform.