Pension Part of Social Security

The aim of the Finnish social security system is to ensure basic security for everyone in all situations of life.  Social security can be divided into income security and social and health services.

Income security consists of statutory social insurance and supplementary support and assistance.

Social insurance, on the other hand, refers to statutory measures taken to secure the subsistence of the individual through insurance. Social insurance consists of:

  • statutory pension insurance
  • health insurance
  • workers’ compensation insurance
  • unemployment insurance.

Some social insurance benefits are based on work, others on residence in Finland. Work entitles to benefits, the level of which is defined based on your earnings from work. In Finland, such benefits constitute earnings-related pensions and allowances.

Earnings-related benefits are financed through payments that are proportionate to the wage, and partly also the insurance risk. The basic allowance of the unemployment security is financed by the State.

Benefits based on residence are the national pension, guarantee pension and minimum allowances that are independent of earnings. All Finnish residents are entitled to these benefits, under certain preconditions. The minimum security is mainly financed through tax funds and contributions of a tax nature.

Income security is also supplemented by support and assistance, paid out for various reasons. Income support is the last resort in terms of security.

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Income security while receiving a pension

The statutory pension insurance in Finland consists of national pension and guarantee pension managed by the Social Insurance Institution of Finland as well as the earnings-related pension, managed by various earnings-related pension providers. The national pension and guarantee pension cover the entire population. The earnings-related pension security covers the entire workforce, including the self-employed.

The earnings-related pension secures a reasonable consumption level for employees and self-employed persons also after retirement. The national pension together with the guarantee pension, both paid by the Social Insurance Institution, ensures a basic income security for all pensioners.

The earnings-related pension and national pension have complemented each other since the start of the earnings-related pension scheme. The amount of earnings-related pension affects the national pension. If a person has a small earnings-related pension or none at all, he will receive the national pension in full. The amount of national pension gradually decreases as the amount of earnings-related pension grows.

Pension income decreases the guarantee pension share in full, in other words more steeply than in the case of national pension. Pension income is also taken into account more comprehensively than in the case of national pension. Guarantee pension is only granted to pension recipients in the lowest income bracket.

Earnings-related pension and national pension is paid out based on criteria that depend on the situation of the pension recipient. The old-age pension serves as an extension of the working career, the disability pension provides coverage when illness or injury prevents a person from working, and the survivors’ pension provides coverage for family members following the death of the employee. With the help of the part-time pension of the earnings-related pension scheme, an ageing employee may decrease his or her work contribution prior to retiring on an old-age pension.

Sickness and pension security

When an employee gets ill and is unfit for gainful employment, the health insurance allowance initially covers part of the loss in earnings. The Social Insurance Institution pays allowance to employees between 16 and 67 years of age, following the end of the qualifying period for benefit of nine weekdays, counted from the day of falling ill. The precondition for receiving allowance is that the person fallen ill has been working for three months prior to the start of the disability. New earnings-related pension is accrued from short-term periods of illness.

At first, employees are usually paid allowance for at most 300 days of illness, based on the Sickness Insurance Act. If the disability continues, he or she will receive a temporary rehabilitation allowance from the pension schemes once the allowance period ends. If the disability is deemed to be permanent, the Social Insurance Institution and the pension providers pay disability pension or partial disability pension.

The pension recipient also has the opportunity to receive rehabilitation in order to restore work capacity and/or improve work and earnings capacity, from either the earnings-related pension scheme or the national pension scheme.

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Pension security of a person injured in an accident

According to the statutory workers’ compensation insurance, all persons in employment are considered to be insured.

In order to safeguard the security of persons exempt from statutory insurance in the event of accidents at work, it is possible to arrange a workers’ compensation insurance for self-employed persons from the pension provider, or a voluntary insurance covering the period of work.

Accident insurance is paid out to the injured person following the end of the allowance period. A person whose working capacity has decreased at least 10 per cent due to an accident or occupational disease, and whose earnings from work have decreased as a result, is entitled to pension.

If a person is injured in a traffic accident rather than an accident at work, he or she is awarded compensation for loss of income according to the Motor Insurance Act.

Compensations paid based on accident and motor insurance override the earnings-related pensions. This means that the injured party is primarily paid accident and motor insurance compensation, and will receive earnings-related pension only if the earnings-related pension is bigger than the compensation for loss of income. New earnings-related pension accrues from short-term periods of accident and motor liability insurance compensation.

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Death of an employee

Employees’ Group Life Insurance is an insurance arrangement based on an agreement between labour market organisations, from which a compensatory provision is paid to the heirs when an employee dies. The provision is paid in all cases of death, regardless of the cause of death.

Additionally, survivors’ pension is paid to the surviving spouse and children from the earnings-related pension scheme, based on the employee’s own pension. The Social Insurance Institution pays out survivors’ pension from the national pension scheme as a complement to the employee’s earnings-related pension.

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Unemployment and pension security

An unemployed job applicant residing in Finland, who has worked previously, is entitled to unemployment allowance. The unemployment allowance is paid for at most 500 days. The basic allowance and earnings-related unemployment allowance are paid based on the same preconditions.

The precondition for receiving the earnings-related unemployment allowance is membership in the unemployment fund for a sufficient time period. New earnings-related pension also accrues from periods of earnings-related unemployment allowance.

The labour market support secures an income for unemployed persons resident in Finland who are not eligible for unemployment allowance due to not having worked previously. It is thus intended for unemployed persons who are only now being introduced to the labour market. It is also awarded to unemployed persons for whom the maximum payment period for unemployment allowance has been filled.

If the self-employed person has been a member of the unemployment fund for self-employed persons, he or she has the right to earnings-related unemployment allowance or training. Otherwise he or she is eligible for basic allowance paid by the Social Insurance Institution.

A person who has turned 60 (persons born 1955-1956) or 61 (persons born 1957 or after) prior to the maximum number of unemployment allowance days, 500, having been completed, is entitled to additional days based on the Unemployment Security Act. The unemployment allowance is then paid until the start of the pension or until the age of 65.

The self-employed have no right to receive these additional allowance days. Having received the maximum amount of unemployment allowance, the self-employed person may be entitled to labour market support.

An unemployed person who has been awarded additional days and was born before1958, is entitled to old-age pension at 62, without any reduction for early retirement. He or she may thus choose between unemployment benefit and pension. Persons born before 1950 had the opportunity to retire on an unemployment pension from the age of 60 onwards.

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