Should pensions be cut?
The question of cutting pensions has been in the headlines and has sparked debate, particularly since the Finnish Economic Policy Council published its report on 2 February 2026. Although pensions were not the main focus of the report, issues such as pension entitlements during unsalaried periods, survivors’ pensions and, more broadly, reducing pension benefits to strengthen public finances have been discussed since its publication.
Pensions have already been cut
One answer to the question posed in the headline is that pensions have already been cut in many ways. Higher public sector pensions have been discontinued. The qualifying ages for early retirement have been raised, and early retirement has eventually been abolished altogether. A life expectancy coefficient has been introduced, which lowers pension levels. The retirement age for the old-age pension rises automatically. Lifetime survivors’ pensions have been scrapped. This list of cutbacks also includes weaker index adjustments.
Further decisions that weaken pensions are expected under the current government. In spring, the government is set to propose a limit on index increases to Parliament. This would weaken the inflation protection of earnings-related pensions already in payment.
The effects of pension cuts persist
Due to the constitutional protection of property rights and the transition and protection rules, it is mostly future pensions that have been affected rather than those already being paid. This means that the impact of past decisions will be felt for a long time.
One way to assess the development of pensions is to look at the ratio of the average pension to the average wage. Calculations by the Finnish Centre for Pensions indicate that previous pension reforms have weakened this ratio. The effects of these reforms will be felt for decades. The retirement age for the old-age pension is increasing, and the life expectancy coefficient will reduce the initial level of pensions more than before. Therefore, the average level of pensions compared to average earnings is shrinking even without new cuts.
Is there a need for further cuts?
The Finnish Economic Policy Council pointed out that pension rights for unsalaried periods have not been addressed. As these pension rights apply to different groups in different ways, weakening them would not affect the whole population in the same way that changes to, for example, old-age pension rules would. The impact of the changes would depend on which pension right was affected. Generally, the effects would be felt far into the future.
As such, earnings-related pension funding does not require further pension cuts. Achieving sustainable funding has been a long process. The aim of the most recent pension reforms has been to maintain the balance well into the future. However, there are legal and timing differences in these balances. The poor state of public economy warrants a look at state pension liabilities in particular.
In Finland, earnings-related pensions are counted as part of public finances. In many other countries, however, earnings-related pensions are not included in public finances. Nevertheless, they still generate pension expenditure and payments, even though they do not appear in pension expenditure statistics or the overall tax rate.
The Finnish Centre for Pensions has occasionally compared contribution levels, taking different pension structures into account. The overall contribution level in Finland is similar to that in other Nordic and Northern European countries.
Providing a reasonable pension is expensive everywhere. Wishes and demands regarding pensions are similar everywhere. Pension levels in Finland are average by international standards. If statutory pensions fail to meet people’s expectations, something else must replace them.
Thus, the idea of weakening pensions does not stem from a situation of insufficient pension funding within the earnings-related pension system, nor from high contribution levels or overly generous pensions – let alone the wishes of citizens. The discussion is mainly driven by poorly managed state finances.
How are the weakening of pensions justified?
Further cuts to earnings-related pensions are often justified by claims that reducing people’s pensions would allow for lower pension contributions and higher taxes. The TyEL contribution has remained at the same level for over ten years and has not yet locked in the overall tax rate. During this time, tax policies and state finance management under the governments of Juha Sipilä, Antti Rinne, Sanna Marin and Petteri Orpo have all been very different.
Some have suggested that savings from pension expenditure should be specifically allocated to funding public health and social services. However, governments are unpredictable. As a political choice, the savings could easily be used to lower the tax rate or be directed elsewhere.
While saving on pension expenditure may seem straightforward, the net effects are not clear-cut. Even if reducing public sector earnings-related pension expenditure had the desired effect, two-thirds of such expenditure is in the private sector. It is not possible to lower the TyEL contribution directly just because earnings-related pension companies pay out less, as this is decided separately.
The pension reform soon to be discussed by Parliament includes the idea of keeping contributions at their current level until 2030. Maintaining the current TyEL contribution level is justified to increase funding reserves as planned.
Decisions on pension policy also affect economic development. Cutting pensions would mean a lower average pension level. Smaller earnings-related pensions would result in lower tax revenue. People might save more and be more cautious about spending.
Pension cuts are also justified by appeals to fairness. The argument is that since other social security benefits have been cut, pensions should be cut, too. Changes to pensions have also been justified in the name of intergenerational fairness.
When discussing the fair targeting of adjustment measures, the conversation shifts from government fiscal policy to the core issues of welfare policy. Questions about the relative importance of basic security, social and health services, and pensions, as well as fairness between population groups and generations, are closely linked to the values and political priorities of decision-makers.
It is known that Prime Minister Petteri Orpo’s government is not seeking further pension cuts, and there may not be enough time to prepare changes before the end of the current government term. The most important thing is what the next government thinks about this complex issue.
