The employment report of the European Commission calls Finland’s pension reform an embodiment of the solution to the pension problems of an ageing Europe. According to the Commission, the Finnish pension reform will extend working lives, curb pension expenditure and improve employment rates.
The Finnish pension reform received a great deal of attention at the ESDE 2017 conference of the European Commission in Brussels on 10 October, where Director Mikko Kautto (picture) of the Finnish Centre for Pensions participated in a panel discussion on intergenerational fairness.
The conference related to the annual report Employment and Social Developments in Europe (ESDE) published by the Commission. The report presents the Finnish pension reform as a model for a sustainable European pension solution.
The reform that came into effect at the beginning of 2017 is intended to secure the financing of earnings-related pensions, ensure sufficient pensions for retirees and achieve intergenerational fairness. The Commission finds that the reform has succeeded in its aims.
Linking the retirement age to life expectancy increases employment
The ESDE report focuses on two features of our pension reform in particular: linking the retirement age to life expectancy and the life expectancy coefficient.
According to the Commission’s calculations, both extend working lives and curb pension expenditure.
That, in turn, will even out the pressure to raise pension contributions as employment costs will be reduced and the amount of the wage left in hand will rise. As a result, employment rates will rise and GDP will grow. All of this will help finance the public economy.
According to the calculations by the Commission, the young will benefit from rising employment rates as their working lives are less unified than those of earlier generations.
“The Commission is worried about the double burden of the young in Europe: the cost burden is rising and the pensions are becoming smaller. Thanks to the pension reforms in Finland, we can finance our future pensions at the current pension contribution level without significant cuts in future pension levels”, says Kautto.
Employment and Social Developments in Europe Annual Review 2017 (pdf)
The pension reform in Finland is discussed in the chpater titled “Securing good living standards in retirement also in the future”
Mikko Kautto’s blog on 11 October 2017: How to make pension systems more robust – Automatic adjustment mechanisms as a response to longevity
(Photo: European Commission)