The earnings-related pension and the national pension, together with the guarantee pension, ensure the income of the population in case of old age, disability or the death of the family provider.
Earnings-related pension accrues from gainful employment and self-employment that is insured in the earnings-related pension scheme. The national and the guarantee pensions are residence based.
Pension benefits ensure the economic welfare in different situations in life
The earnings-related pension of the insured can be based on employment covered by several different pension acts. However, the pension benefits under the different acts are similar. Benefits under the earnings-related pension scheme are:
- the old-age pension,
- the partial old-age pension,
- the disability pension (full or partial)
- different rehabilitation benefits (the rehabilitation allowance, hte partial rehabilitation allowance and th erehabilitation increment),
- the years-of-service pension (can be granted in 2018 at the earliest),
- the part-time pension,
- the survivors’pension, and
- the farmers’ early retirement aid.
The part-time pension is no longer granted, but part-time pensions already in payment can continue to be paid out.
The purpose of the national pension and the guarantee pension is to provide the insured with a minimum income. The benefits under the national pension scheme are:
- old-age pensions,
- disability pensions,
- survivors’ pensions, and
- rehabilitation benefits.
At the end of 2016, there were 1,559,000 pension recipients, the majority of whom drew an old-age pension. The figure below shows the pension recipients by pension type. Note that a person may receive several different pension benefits at the same time.
All pension recipients as at 31 Dec. 2016
The earnings-related and national pension benefits are determined on different grounds
The earnings-related pension accrues at a rate of 1.5 per cent of the insured person’s annual gross wages. For those aged between 52 and 62, the accrual rate is 1.7 per cent during a transition period from 2017 to 2025. Pension also accrues for certain unpaid periods.
When the earnings-related pension is small, the insured is paid a residence-based national pension. The national pension benefits are proportional to the earnings-related pension benefits. That means that the amount of the national pension is partly reduced as the earnings-related pension increases. No national pension is paid if the earnings-related pension exceeds 1,299.88 euros/month for single pensioners or 1,157.71 euros/month for married or cohabiting pensioners (in 2017).
The amount of the national pension is affected by the insured person’s family status and time of residence in Finland. Various supplements based on special needs are paid under the national pension scheme.
A guarantee pension is paid if the monthly pension is less than 760.26 euros. Pension income that is taken into consideration in the guarantee pension reduces the guarantee pension in full.
Until the end of 2004, earnings-related pensions were integrated with each other so that they did not exceed 60 per cent of the pensionable wages. Private sector pensions are no longer limited. In the public sector, the basic pension (earnings-related pension without supplementary pensions) earned before 2005 continues to be integrated with statutory basic pensions accrued before 2005.
In addition to earnings and national pensions, pensions are also paid based on the motor liability and workers’ compensation insurance acts. The LITA benefits paid based on the Motor Liability Act, the Workers’ Compensation Act and the Military Accident Insurance Act are primary in relation to the earnings-related and the national pension. In other words, the earnings-related or the national pension becomes payable only to the extent that it is larger than the LITA benefits.
Total pension 2017
Earnings-related pension paid to nearly all pensioners
The earnings-related pension scheme that gradually matured forms a considerable part of the pension provision. At the end of 2016, approximately 60 per cent of the pensioners living in Finland and receiving a pension in their own right (excluding recipients of survivors’ pensions or the part-time pension) received only an earnings-related pension.
Both a national pension and an earnings-related pension were received by 35 per cent of pension recipients, while five per cent drew only a national pension. At the end of 2016, a total of 1,449,000 persons living in Finland received a pension in their own right, while the total number of pension recipients was 1,559,000.
Pension recipients by pension composition in 1996–2016
- Total Pension in 2017: How are the earnings-related and national pensions and taxation determined (Summary in English)
Index adjustments secure pension levels
The purpose of earnings-related pension provision is to ensure that the insured person’s level of consumption during their active period remains on a reasonable level when retiring and during retirement. On its part, the aim of the indexing of the earnings-related pensions is to ensure that this goal is met.
That is why, when determining the earnings-related pension, the earnings and income from the insured person’s employments are adjusted with the wage coefficient to the level of the starting year of the pension. After that, the pension in payment is adjusted annually with the earnings-related pension index.
To secure the purchasing power of the national pension, it is adjusted annually with the national pension index, which monitors changes to consumer prices.